Maintaining Privacy in Cartels∗

It is conventional wisdom that transparency in cartels– monitoring of competitors’ prices, sales, and profits– facilitates collusion. However, in several recent cases cartels have instead gone out of their way to preserve the privacy of their participants’actions and outcomes. Towards explaining this behavior, we show that cartels can sometimes sustain higher profits when actions and outcomes are only observed privately, because better information can hinder collusion by helping firms devise more profitable deviations. We provide conditions under which maintaining privacy is optimal for cartels that follow the home-market principle of encouraging firms to act as local monopolies while refraining from competing in each other’s markets. In simple examples, the cartel-optimal level of transparency is increasing in the discount factor and decreasing in the persistence of market demand. We also show that maintaining privacy can be optimal even in stationary environments. ∗We thank Leslie Marx, Tom Wiseman, and John Asker for insightful discussions of this paper. For helpful comments, we thank Daron Acemoglu, Nikhil Agarwal, Yu Awaya, Kyle Bagwell, Glenn Ellison, Joe Harrington, Ali Hortaçsu, Vijay Krishna, Kevin Li, Markus Möbius, Juan Ortner, Andy Skrzypacz, Juuso Toikka, Glen Weyl, and Mike Whinston; participants in the 2016 Warwick Economic Theory Workshop, the 2016 Searle Antitrust Conference, the 2016 Columbia/Duke/MIT/Northwestern IO Theory Conference, the Winter 2017 NBER IO Meetings, and seminars at Microsoft Research, MIT, Northwestern, Oxford, Stanford, and Tokyo; and the anonymous referees. The second author acknowledges financial support from the NSF.