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Non-Cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium

By In K. Lee


Abstract. This article focuses on testing the intuitive idea of Folk Theorem in a repeated game, and the existence of complementary bidding and incumbency premium. Through careful analysis of bidding behaviors in the Dallas-Ft. Worth (DFW) school-milk industry, I find that cooperation based on rationality and repetition satisfies the conditions for a kind of Folk Theorem. The data also strongly suggest that all major milk processors are engaged in complementary bidding to allocate consumers geographically and command statistically significant incumbency premia in their incumbent districts. Even if the equilibrium outcomes are largely non-cooperative, some pieces of circumstantial evidence uncovered in this school-milk market study may be sufficiently convincing to enable dispensing with evidence of actual communication. Key words: Non-cooperative tacit collusion, complementary bidding, incumbency premium, antitrust policy. JEL Citation Index: C7, L1, L4. I

Year: 2011
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