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Tacit Collusion under Fairness and Reciprocity

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Author Info
Doruk Iris
Luís Santos-Pinto

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Abstract

This paper explores the implications of fairness and reciprocity in dynamic market games. A reciprocal player responds to kind behavior of rivals with unkind actions (destructive reciprocity), while at the same time, it responds to kind behavior of rivals with kind actions (constructive reciprocity). The paper shows that for general perceptions of fairness, reciprocity facilitates collusion in dynamic market games. The paper also shows that this is a robust result. It holds when players' choices are strategic complements and strategic substitutes. It also holds under grim trigger punishments and optimal punishments.

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Publisher Info
Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 09.03.

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Length: 23 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:lau:crdeep:09.03

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
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Fax: ++41 21 692.33.65
Web page: http://www.hec.unil.ch/deep/publications-english/e-cahiers.htm

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Related research
Keywords: fairness; reciprocity; collusion; repeated games;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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  1. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
  2. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March. [Downloadable!] (restricted)
  3. Matthew Rabin., 1997. "Fairness in Repeated Games," Economics Working Papers 97-252, University of California at Berkeley.
  4. Segal, Uzi & Sobel, Joel, 2007. "Tit for tat: Foundations of preferences for reciprocity in strategic settings," Journal of Economic Theory, Elsevier, vol. 136(1), pages 197-216, September. [Downloadable!] (restricted)
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  5. Malueg, David A., 1992. "Collusive behavior and partial ownership of rivals," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 27-34, March. [Downloadable!] (restricted)
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  6. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
  7. Nabil Al-Najjar & Sandeep Baliga & David Besanko, 2008. "Market forces meet behavioral biases: cost misallocation and irrational pricing," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 214-237. [Downloadable!] (restricted)
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This page was last updated on 2009-11-22.

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