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A theory of collusion with partial mutual understanding

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  • Harrington, Joseph E.

Abstract

Unlawful collusion is when firms have a mutual understanding to coordinate their behavior for the purpose of achieving a supracompetitive outcome. Given the legal focus on mutual beliefs, this paper explores the role of mutual beliefs in producing collusion. Focusing on price leadership, firms are assumed to commonly believe that price increases will be at least matched but lack any shared understanding about who will lead, when they will, and at what prices. Sufficient conditions are derived which ensure that supracompetitive prices emerge. However, price is bounded below the maximal equilibrium price.

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  • Harrington, Joseph E., 2017. "A theory of collusion with partial mutual understanding," Research in Economics, Elsevier, vol. 71(1), pages 140-158.
    • Handle: RePEc:eee:reecon:v:71:y:2017:i:1:p:140-158
    DOI: 10.1016/j.rie.2016.11.005
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    References listed on IDEAS

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    Cited by:

    1. Pierpaolo Battigalli & Pietro Tebaldi, 2019. "Interactive epistemology in simple dynamic games with a continuum of strategies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(3), pages 737-763, October.
    2. Thomas Bourveau & Guoman She & Alminas Žaldokas, 2020. "Corporate Disclosure as a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations," Journal of Accounting Research, Wiley Blackwell, vol. 58(2), pages 295-332, May.
    3. David Spector, 2022. "Cheap Talk, Monitoring and Collusion," PSE-Ecole d'économie de Paris (Postprint) halshs-03760756, HAL.
    4. Foros, Øystein & Nguyen-Ones, Mai, 2021. "Coordinate to obfuscate? The role of prior announcements of recommended prices," Economics Letters, Elsevier, vol. 198(C).
    5. David Spector, 2017. "Cheap talk, monitoring and collusion," Working Papers hal-01975642, HAL.
    6. David Spector, 2022. "Cheap Talk, Monitoring and Collusion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(2), pages 193-216, March.
    7. Tveito, Andreas, 2019. "Coordination and price leadership in an unregulated environment," Working Papers in Economics 4/19, University of Bergen, Department of Economics.
    8. David Spector, 2022. "Cheap Talk, Monitoring and Collusion," Post-Print halshs-03760756, HAL.

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