The arm's length principle and tacit collusion

Chongwoo Choe, Noriaki Matsushima

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9 Citations (Scopus)


The arm s length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm s length with each other. This paper examines the effect of the arm s length principle on dynamic competition in two alternative models of vertical market structure. It is shown that the arm s length principle renders tacit collusion more stable and can reduce welfare when collusion targets the maximum collusive profit achievable in each environment.
Original languageEnglish
Pages (from-to)119 - 130
Number of pages12
JournalInternational Journal of Industrial Organization
Issue number1
Publication statusPublished - 2013

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