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Flexibility and Collusion with Imperfect Monitoring

Author

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  • Bigoni, Maria
  • Potters, Jan
  • Spagnolo, Giancarlo

Abstract

Flexibility - the ability to react swiftly to others' choices - facilitates collusion by reducing gains from defection before opponents react. Under imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. The combination of these forces predicts a non-monotonic relationship between flexibility and collusion. To test this subtle prediction we implement in the laboratory an indefinitely repeated Cournot game with noisy price information and vary how long players have to wait before changing output. We find that (i) the facilitating role of flexibility is lost under imperfect monitoring, and (ii) with learning, collusion unravels with low or high flexibility, but not with intermediate flexibility.

Suggested Citation

  • Bigoni, Maria & Potters, Jan & Spagnolo, Giancarlo, 2012. "Flexibility and Collusion with Imperfect Monitoring," CEPR Discussion Papers 8877, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8877
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
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    3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
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    5. Daniel Friedman & Ryan Oprea, 2012. "A Continuous Dilemma," American Economic Review, American Economic Association, vol. 102(1), pages 337-363, February.
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    7. Cason, Timothy N. & Khan, Feisal U., 1999. "A laboratory study of voluntary public goods provision with imperfect monitoring and communication," Journal of Development Economics, Elsevier, vol. 58(2), pages 533-552, April.
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    Cited by:

    1. Rand, David G. & Fudenberg, Drew & Dreber, Anna, 2015. "It's the thought that counts: The role of intentions in noisy repeated games," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 481-499.

    More about this item

    Keywords

    Collusion; Cooperation; Flexibility; Imperfect monitoring; Oligopoly; Repeated games.;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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