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Tacit collusion with price-matching punishments

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  • Lu, Yuanzhu
  • Wright, Julian

Abstract

Tacit collusion is explored under a strategy in which, loosely speaking, firms match the lowest price set by any firm in the previous period. Conditions are provided under which this strategy supports collusive outcomes in a subgame perfect equilibrium. In contrast to traditional results, the highest collusive price is always lower than the monopoly price. It corresponds to the unique Nash equilibrium price when upward and downward price deviations are matched. Our paper provides a game theoretic interpretation of the old kinked demand curve theory which unlike earlier attempts does not depart from standard timing assumptions to do so.

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Bibliographic Info

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

Volume (Year): 28 (2010)
Issue (Month): 3 (May)
Pages: 298-306

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Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:298-306

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

Related research

Keywords: Collusion Intertemporal reaction functions Kinked demand curve;

References

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Citations

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Cited by:
  1. Marcelo Resende & Rodrigo M. Zeidan, 2011. "Tacit Collusion under Imperfect Monitoring in the Canadian Manufacturing Industry: An Empirical Study," CESifo Working Paper Series 3623, CESifo Group Munich.
  2. Wright, Julian, 2013. "Punishment strategies in repeated games: Evidence from experimental markets," Games and Economic Behavior, Elsevier, vol. 82(C), pages 91-102.
  3. Schwalbe, Ulrich & Baake, Pio, 2013. "Price Guarantees, Consumer Search, and Hassle Costs," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80023, Verein für Socialpolitik / German Economic Association.
  4. Joseph E. Harrington, Jr., 2012. "Evaluating Mergers for Coordinated Effects and the Role of 'Parallel Accommodating Conduct'," Economics Working Paper Archive 601, The Johns Hopkins University,Department of Economics.
  5. Garrod, Luke, 2012. "Collusive price rigidity under price-matching punishments," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 471-482.
  6. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer, vol. 48(1), pages 45-69, February.
  7. Pio Baake & Ulrich Schwalbe, 2013. "Price Guarantees, Consumer Search, and Hassle Costs," Discussion Papers of DIW Berlin 1335, DIW Berlin, German Institute for Economic Research.
  8. Joseph E. Harrington, Jr., 2012. "A Theory of Tacit Collusion," Economics Working Paper Archive 588, The Johns Hopkins University,Department of Economics.

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