IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Tacit collusion with price-matching punishments

  • Lu, Yuanzhu
  • Wright, Julian

Tacit collusion is explored under a strategy in which, loosely speaking, firms match the lowest price set by any firm in the previous period. Conditions are provided under which this strategy supports collusive outcomes in a subgame perfect equilibrium. In contrast to traditional results, the highest collusive price is always lower than the monopoly price. It corresponds to the unique Nash equilibrium price when upward and downward price deviations are matched. Our paper provides a game theoretic interpretation of the old kinked demand curve theory which unlike earlier attempts does not depart from standard timing assumptions to do so.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6V8P-4XFPPT4-1/2/1cc0058862af227302756b88a98dfa73
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 3 (May)
Pages: 298-306

as
in new window

Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:298-306
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Albaek, Svend & Lambertini, Luca, 1998. "Collusion in differentiated duopolies revisited," Economics Letters, Elsevier, vol. 59(3), pages 305-308, June.
  2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  3. Slade, Margaret E, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 257-76, April.
  4. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  5. Friedman James W. & Samuelson Larry, 1994. "Continuous Reaction Functions in Duopolies," Games and Economic Behavior, Elsevier, vol. 6(1), pages 55-82, January.
  6. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  7. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  8. Friedman, James W. & Samuelson, Larry, 1990. "Subgame perfect equilibrium with continuous reaction functions," Games and Economic Behavior, Elsevier, vol. 2(4), pages 304-324, December.
  9. Harrington, Joseph Jr., 1991. "The joint profit maximum as a free-entry equilibrium outcome," European Economic Review, Elsevier, vol. 35(5), pages 1087-1101, July.
  10. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  11. Macleod, W.B., 1984. "A theory of conscious parallelism," CORE Discussion Papers 1984040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  13. Slade, Margaret E., 1990. "Strategic pricing models and interpretation of price-war data," European Economic Review, Elsevier, vol. 34(2-3), pages 524-537, May.
  14. Genesove, David & Mullin, Wallace P, 2001. "Rules, Communication and Collusion: Narrative Evidence from the Sugar Institute Case," CEPR Discussion Papers 2739, C.E.P.R. Discussion Papers.
  15. Stanford, William G., 1986. "Subgame perfect reaction function equilibria in discounted duopoly supergames are trivial," Journal of Economic Theory, Elsevier, vol. 39(1), pages 226-232, June.
  16. Slade, Margaret E, 1989. "Price Wars in Price-Setting Supergames," Economica, London School of Economics and Political Science, vol. 56(223), pages 295-310, August.
  17. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
  18. Slade, Margaret E, 1987. "Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 499-516, June.
  19. Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 1-13, March.
  20. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, vol. 65(3), pages 517-556, May.
  21. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
  22. Kalai, Ehud & Stanford, William, 1985. "Conjectural variations strategies in accelerated cournot games," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 133-152, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:298-306. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.