Collusion with Monitoring Based on Self-Reported Sales∗

Motivated by some recent cartels, this paper characterizes a stable collusive mechanism when firms’ prices and quantities are private information. An equilibrium is described in which firms truthfully report their sales and then make transfers based on these reports. Even though a higher sales report requires a higher transfer by a firm, the threat of a price war when the aggregate sales report is low induces accurate self-reporting. This strategy profile is an equilibrium when firms are sufficiently patient and market demand is not too stochastic.