On Communication and Collusion

Yu Awaya · Vijay Krishna

87 citations0/0 files storedAmerican Economic Review

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Merger and Competition Analysis Game Theory and Applications Auction Theory and Applications

Abstract

We study the role of communication within a cartel. Our analysis is carried out in Stigler’s (1964) model of repeated oligopoly with secret price cuts. Firms observe neither the prices nor the sales of their rivals. For a fixed discount factor, we identify conditions under which there are equilibria with “cheap talk” that result in near-perfect collusion, whereas all equilibria without such communication are bounded away from this outcome. In our model, communication improves monitoring and leads to higher prices and profits. (JEL C73, D43, D83, L12, L13, L25)

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References

1984Noncooperative Collusion under Imperfect Price Information 1964A Theory of Oligopoly 1971A Non-cooperative Equilibrium for Supergames 1990Toward a Theory of Discounted Repeated Games with Imperfect Monitoring 1988Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions 2006Repeated Games and Reputations 2006Repeated Games and Reputations: Long-Run Relationships 1986Exchange of Cost Information in Oligopoly

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