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The Power of Communication

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  • David Rahman

Abstract

In this paper, I offer two ways in which firms can collude: secret monitoring and infrequent coordination. Such collusion is enforceable with intuitive communication protocols. I make my case in the context of a repeated Cournotoligopoly with flexible production, prices that follow a Brownian motion and no monetary side payments, an environment where it has previously been argued that any collusion is impossible. Trade associations can easily facilitate collusion by mediating communication amongst firms.

Suggested Citation

  • David Rahman, 2014. "The Power of Communication," American Economic Review, American Economic Association, vol. 104(11), pages 3737-3751, November.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:11:p:3737-51
    Note: DOI: 10.1257/aer.104.11.3737
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    References listed on IDEAS

    as
    1. David Rahman & Ichiro Obara, 2007. "Secret Contracts for Efficient Partnerships," Levine's Bibliography 321307000000000934, UCLA Department of Economics.
    2. Yuliy Sannikov & Andrzej Skrzypacz, 2007. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," American Economic Review, American Economic Association, vol. 97(5), pages 1794-1823, December.
    3. Drew Fudenberg & David K. Levine, 2008. "Continuous time limits of repeated games with imperfect public monitoring," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 17, pages 369-388, World Scientific Publishing Co. Pte. Ltd..
    4. Hitoshi Matsushima, 2004. "Repeated Games with Private Monitoring: Two Players," Econometrica, Econometric Society, vol. 72(3), pages 823-852, May.
    5. William Fuchs, 2007. "Contracting with Repeated Moral Hazard and Private Evaluations," American Economic Review, American Economic Association, vol. 97(4), pages 1432-1448, September.
    6. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
    7. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May.
    8. Drew Fudenberg & David K. Levine, 2009. "Repeated Games with Frequent Signals," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 233-265.
    9. Obara, Ichiro, 2009. "Folk theorem with communication," Journal of Economic Theory, Elsevier, vol. 144(1), pages 120-134, January.
    10. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
    11. Roy Radner, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 43-57.
    12. Roy Radner & Roger Myerson & Eric Maskin, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 59-69.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “The Power of Communication,” D. Rahman (2014)
      by afinetheorem in A Fine Theorem on 2015-04-25 01:40:51

    Citations

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    Cited by:

    1. Escobar, Juan F. & Llanes, Gastón, 2018. "Cooperation dynamics in repeated games of adverse selection," Journal of Economic Theory, Elsevier, vol. 176(C), pages 408-443.
    2. M. Hasanuzzaman & Ummu Salamah Zubir & Nur Iqtiyani Ilham & Hang Seng Che, 2017. "Global electricity demand, generation, grid system, and renewable energy polices: a review," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 6(3), May.
    3. Julio B. Clempner & Alexander S. Poznyak, 2021. "Analytical Method for Mechanism Design in Partially Observable Markov Games," Mathematics, MDPI, vol. 9(4), pages 1-15, February.
    4. David Spector, 2022. "Cheap Talk, Monitoring and Collusion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(2), pages 193-216, March.
    5. Porter, Robert H., 2020. "Mergers and coordinated effects," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    6. William López-Castrillón & Héctor H. Sepúlveda & Cristian Mattar, 2021. "Off-Grid Hybrid Electrical Generation Systems in Remote Communities: Trends and Characteristics in Sustainability Solutions," Sustainability, MDPI, vol. 13(11), pages 1-29, May.
    7. Tóbiás, Áron, 2023. "Rational Altruism," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 50-80.
    8. B. Douglas Bernheim & Erik Madsen, 2017. "Price Cutting and Business Stealing in Imperfect Cartels," American Economic Review, American Economic Association, vol. 107(2), pages 387-424, February.
    9. Awaya, Yu & Krishna, Vijay, 2019. "Communication and cooperation in repeated games," Theoretical Economics, Econometric Society, vol. 14(2), May.
    10. David Spector, 2022. "Cheap Talk, Monitoring and Collusion," Post-Print halshs-03760756, HAL.
    11. Yi Tang & Feng Li & Chenyi Zheng & Qi Wang & Yingjun Wu, 2018. "PMU Measurement-Based Intelligent Strategy for Power System Controlled Islanding," Energies, MDPI, vol. 11(1), pages 1-15, January.
    12. Sofana Reka. S & Tomislav Dragičević & Pierluigi Siano & S.R. Sahaya Prabaharan, 2019. "Future Generation 5G Wireless Networks for Smart Grid: A Comprehensive Review," Energies, MDPI, vol. 12(11), pages 1-17, June.
    13. David Spector, 2022. "Cheap Talk, Monitoring and Collusion," PSE-Ecole d'économie de Paris (Postprint) halshs-03760756, HAL.
    14. Odenkirchen, Johannes, 2017. "Pricing Behavior of Cartel Outsiders in Incomplete Cartels," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168309, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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