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Competing Mechanisms with Limited Commitment

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  • Suehyun Kwon

Abstract

This paper studies competing mechanisms with limited commitment over infinite horizon. Between a mechanism and the agent, there is perfect monitoring, but each mechanism can have arbitrary signals about the interaction between other mechanisms and the agent. I show that if the agent’s type is common knowledge, any individually rational payoffs can be sustained in a perfect Bayesian equilibrium. If the agent’s type is his private information, Pareto frontier of mechanisms’ payoffs can be obtained by repeating the static optimal screening every period; in particular, price posting with the static optimal price is the optimal mechanism. The complete information case is a strong form of folk theorem while the incomplete information case shows that folk theorem breaks down with private information even as the discount factor goes to one. Results hold with any finite number of mechanisms, any discount factor and any monitoring technology including private monitoring.

Suggested Citation

  • Suehyun Kwon, 2016. "Competing Mechanisms with Limited Commitment," CESifo Working Paper Series 6280, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6280
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp6280.pdf
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    References listed on IDEAS

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    1. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    2. Joseph E. Harrington & Andrzej Skrzypacz, 2011. "Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices," American Economic Review, American Economic Association, vol. 101(6), pages 2425-2449, October.
    3. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-465, Autumn.
    4. Bergemann, Dirk & Valimaki, Juuso, 2006. "Dynamic price competition," Journal of Economic Theory, Elsevier, vol. 127(1), pages 232-263, March.
    5. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
    6. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
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    Keywords

    competing mechanisms; limited commitment; private monitoring; price posting; folk theorem;

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