A Theoretical analysis of cooperation incentives for non-mutually dependent sellers

This paper examines stochastic cooperation in markets with two sellers who exhibit one-sided dependency. The independent seller’s pricing influences the dependent seller’s demand, but not vice versa. We study the one-dimensional hybrid game class whose parameter is the exogenously given probability of cooperation. In each game of this class, both sellers simultaneously choose prices that determine their endogenous threats, i.e., conflict profits. The sellers are aware of the cooperation probability but cannot condition prices on whether or not there is cooperation. We characterize the equilibrium prices and the sellers’ expected profits. Our main result shows that the independent seller earns higher expected profits when cooperation is more likely. In contrast, the dependent seller earns lower expected profits when the likelihood of cooperation is below a threshold that we characterize explicitly, and higher profits are earned thereafter. These findings suggest that, within our framework, antitrust concerns may be mitigated. Since dependent sellers can incur losses from cooperation, collusion attempts become less viable in markets with one-sided dependency.