Information Exchange in Hub-and-Spoke Cartels

Motivated by recent antitrust cases, a hub-and-spoke collusive mechanism involving multiple downstream firms and their common upstream supplier is explored. To this end, I develop a repeated sequential game in which downstream firms receive private demand signals and send private messages to the upstream supplier, who then makes a public non-binding downstream price recommendation. Direct information exchange among horizontal competitors is not allowed. For sufficiently high discount factors, I construct a collusive equilibrium in which firms can sustain nearly perfect industry-wide monopoly profit. The upstream firm's participation in a cartel is shown to be crucial to achieving truthful communication and efficiency