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Collusion, Fluctuating Demand, And Price Rigidity

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  • Makoto Hanazono
  • Huanxing Yang

Abstract

We study an infinitely repeated Bertrand game in which an i.i.d. demand shock occurs in each period. Each firm receives a private signal about the demand shock at the beginning of each period. At the end of each period, all information but the private signals becomes public. We consider the optimal symmetric perfect public equilibrium (SPPE) mainly for patient firms. We show that price rigidity arises in the optimal SPPE if the accuracy of the private signals is low. We also study the implications of more firms and firms' impatience on collusive pricing. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 48 (2007)
Issue (Month): 2 (05)
Pages: 483-515

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Handle: RePEc:ier:iecrev:v:48:y:2007:i:2:p:483-515

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Cited by:
  1. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 526, The Johns Hopkins University,Department of Economics.
  2. Gerlach, Heiko, 2007. "Stochastic market sharing, partial communication and collusion," IESE Research Papers D/674, IESE Business School.
  3. Joseph E. Harrington, Jr. & Wei Zhao, 2012. "Signaling and Tacit Collusion in an Infinitely Repeated Prisoners' Dilemma," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 587, The Johns Hopkins University,Department of Economics.
  4. Gea Myoung Lee, 2008. "Optimal Collusion with Internal Contracting," Working Papers 08-2008, Singapore Management University, School of Economics.
  5. Harrington, Joseph E. & Zhao, Wei, 2012. "Signaling and tacit collusion in an infinitely repeated Prisoners’ Dilemma," Mathematical Social Sciences, Elsevier, Elsevier, vol. 64(3), pages 277-289.
  6. Joseph E. Harrington, Jr. & Wei Zhao, 2010. "Signaling and Tacit Collusion in an Infinitely Repeated Prisoners' Dilemma," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 559, The Johns Hopkins University,Department of Economics.
  7. Joseph E. Harrington, Jr., 2012. "A Theory of Tacit Collusion," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 588, The Johns Hopkins University,Department of Economics.
  8. Garrod, Luke, 2012. "Collusive price rigidity under price-matching punishments," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(5), pages 471-482.

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