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Signaling and Tacit Collusion in an Infinitely Repeated Prisoners' Dilemma

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  • Joseph E. Harrington, Jr.
  • Wei Zhao

Abstract

In the context of an infinitely repeated Prisoners.Dilemma, we explore how cooperation is initiated when players signal and coordinate through their actions. There are two types of players - patient and impatient - and a player's type is private information. An impatient type is incapable of cooperative play, while if both players are patient types - and this is common knowledge - then they can cooperate with a grim trigger strategy. We find that the longer that players have gone without cooperating, the lower is the probability that they'll cooperate in the next period. While the probability of cooperation emerging is always positive, there is a positive probability that cooperation never occurs.

Suggested Citation

  • Joseph E. Harrington, Jr. & Wei Zhao, 2012. "Signaling and Tacit Collusion in an Infinitely Repeated Prisoners' Dilemma," Economics Working Paper Archive 587, The Johns Hopkins University,Department of Economics.
    • Handle: RePEc:jhu:papers:587
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    Cited by:

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    2. Bos Iwan & Letterie Wilko & Vermeulen Dries, 2015. "Antitrust as Facilitating Factor for Collusion," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 797-814, April.
    3. Chowdhury, Subhasish M. & Crede, Carsten J., 2020. "Post-cartel tacit collusion: Determinants, consequences, and prevention," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    4. Harrington, Joseph E., 2017. "A theory of collusion with partial mutual understanding," Research in Economics, Elsevier, vol. 71(1), pages 140-158.
    5. Loet Stekelenburg & Peter T. Dijkstra & Elianne F. Steenbergen & Jessanne Mastop & Naomi Ellemers, 2023. "Integrating Norms, Knowledge, and Social Ties into the Deterrence Model of Cartels: A Survey Study of Business Executives," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(3), pages 275-315, November.
    6. Tveito, Andreas, 2019. "Coordination and price leadership in an unregulated environment," Working Papers in Economics 4/19, University of Bergen, Department of Economics.

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