Silence is golden: communication, silence, and cartel stability
AbstractThis paper studies how cartel stability is influenced by asymmetric information and communication about demand. Firms in a cartel face fluctuating demand in a repeated game framework. In each period, one randomly chosen firm knows current demand. In this context we consider two different equilibria -- one where the informed firm communicates its information to its partners and another where it does not. We show that cartels are extremely unstable when the informed firm communicates with the uninformed firms. However, when the informed firm does not communicate with the uninformed firms cartels can be as stable as when there are no demand fluctuations at all.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 44246.
Date of creation: Jan 2013
Date of revision:
cartels; communication; stability;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L00 - Industrial Organization - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
- NEP-BEC-2013-02-16 (Business Economics)
- NEP-COM-2013-02-16 (Industrial Competition)
- NEP-CTA-2013-02-16 (Contract Theory & Applications)
- NEP-GTH-2013-02-16 (Game Theory)
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