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Stochastic market sharing, partial communication and collusion

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  • Gerlach, Heiko

Abstract

This paper analyzes the role of communication between firms in an infinitely repeated Bertrand game in which firms receive private signals of a common value i.i.d. demand shock. It is shown that firms can use stochastic, inter-temporal market sharing as a substitute for communication in low demand states. Partial communication in high demand states is sufficient to achieve the most collusive, full communication outcome and strictly dominates partial communication in low demand states. Communication in high demand states allows firms to coordinate their pricing, choose the most efficient uninformed price and avoid price wars. I demonstrate that under some conditions consumers are better off with communication among colluding firms.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 6 (November)
Pages: 655-666

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Handle: RePEc:eee:indorg:v:27:y:2009:i:6:p:655-666

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Stochastic market sharing Communication Collusion Competition policy;

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References

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  12. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
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  14. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
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Cited by:
  1. Gerlach, Heiko, 2009. "Stochastic market sharing, partial communication and collusion," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 655-666, November.
  2. Harrington, Joseph E. & Zhao, Wei, 2012. "Signaling and tacit collusion in an infinitely repeated Prisoners’ Dilemma," Mathematical Social Sciences, Elsevier, vol. 64(3), pages 277-289.
  3. Joseph E. Harrington, Jr., 2012. "A Theory of Tacit Collusion," Economics Working Paper Archive 588, The Johns Hopkins University,Department of Economics.
  4. Joseph E. Harrington, Jr. & Wei Zhao, 2012. "Signaling and Tacit Collusion in an Infinitely Repeated Prisoners' Dilemma," Economics Working Paper Archive 587, The Johns Hopkins University,Department of Economics.

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