Profit Sharing Versus Uniform Pricing in Asymmetric Collusion

The most profitable collusive arrangement need not be the one that firms can most easily sustain. We study this issue in a repeated Bertrand duopoly in which market-sharing agreements are infeasible. We compare profit-sharing collusion with side payments, which maximizes joint profits, with uniform-price collusion without transfers, which sacrifices joint profits under cost asymmetry. With positive cost asymmetry and equal bargaining power, profit-sharing is more sustainable when firms are equally patient, but uniform pricing may be the only sustainable arrangement when the efficient firm is sufficiently more patient. Asymmetric bargaining power creates a second channel: sufficiently uneven bargaining power can make uniform pricing more sustainable even when firms have identical discount factors. The findings suggest that uniform-price collusion may arise not only from concealment or detection concerns, but also because its rigidity limits distributive imbalances that undermine self-enforcement.