Collusion in markets with syndication

Abstract

Many markets are syndicated, in the sense that firms compete when they set their prices for an identical good, but after the buyer chooses one of the firms, then the latter hires the rest of the firms in order to smooth the convex production cost. Because of this dependence,the firms have a credible threat over each other so to support a price higher than the perfect-competition price. We model syndicated markets as a repeated extensive form game,and show that standard intuitions from industrial organization can be violated. Collusion may become easier as market concentration falls, and market entry may in fact facilitate collusion. We use this subgame perfect Nash equilibrium to rationalize the findings of the IPO market. We extend previous results that hold in monopsony context to markets that are accessed by an arbitrary number of consumers.