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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. Obara, Ichiro, 2009. "Folk theorem with communication," Journal of Economic Theory, Elsevier, vol. 144(1), pages 120-134, January.
    6. William Fuchs, 2007. "Contracting with Repeated Moral Hazard and Private Evaluations," American Economic Review, American Economic Association, vol. 97(4), pages 1432-1448, September.
    7. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
    8. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May.
    9. Roy Radner, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 43-57.
    10. Roy Radner & Roger Myerson & Eric Maskin, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Oxford University Press, 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. 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.
    2. Awaya, Yu & Krishna, Vijay, 2019. "Communication and cooperation in repeated games," Theoretical Economics, Econometric Society, vol. 14(2), May.
    3. 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.
    4. 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.
    5. Porter, Robert H., 2020. "Mergers and coordinated effects," International Journal of Industrial Organization, Elsevier, vol. 73(C).

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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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