Abstract
This paper considers how the separation between ownership and control affects firms' ability to collude in long-run oligopolies. It finds that as long as managers have a preference for smooth time paths of profits, as revealed by the empirical evidence on "income smoothing," by delegating control owners can sustain any tacit collusive agreement at lower discount factors. Common "lowpowered" managerial incentives with monetary bonuses or incumbency rents are found to make the joint monopoly collusive agreement supportable at any discount factor. Low pay-performance sensitivity in top managers' compensation - as found by Jensen and Murphy (1990) - is therefore "optimal" in the sense of ma:ximizing firms' (collusive) profits.