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Silence is golden: communication, silence, and cartel stability

Author

Listed:
  • Basuchoudhary, Atin
  • Conlon, John R.

Abstract

This paper studies how cartel stability is influenced by asymmetric information and communication about demand. Firms in a cartel face fluctuating demand in a repeated game framework. In each period, one randomly chosen firm knows current demand. In this context we consider two different equilibria -- one where the informed firm communicates its information to its partners and another where it does not. We show that cartels are extremely unstable when the informed firm communicates with the uninformed firms. However, when the informed firm does not communicate with the uninformed firms cartels can be as stable as when there are no demand fluctuations at all.

Suggested Citation

  • Basuchoudhary, Atin & Conlon, John R., 2013. "Silence is golden: communication, silence, and cartel stability," MPRA Paper 44246, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:44246
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    File URL: https://mpra.ub.uni-muenchen.de/44246/1/MPRA_paper_44246.pdf
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    References listed on IDEAS

    as
    1. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2004. "Collusion and Price Rigidity," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 317-349.
    2. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, pages 428-465.
    3. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-396, March.
    4. Conlon, John R., 2003. "Hope springs eternal: learning and the stability of cooperation in short horizon repeated games," Journal of Economic Theory, Elsevier, vol. 112(1), pages 35-65, September.
    5. Feinberg, Robert M, 1980. "Antitrust Enforcement and Subsequent Price Behavior," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 609-612, November.
    6. Aoyagi, Masaki, 2002. "Collusion in Dynamic Bertrand Oligopoly with Correlated Private Signals and Communication," Journal of Economic Theory, Elsevier, vol. 102(1), pages 229-248, January.
    7. Michael F. Sproul, 2009. "Antitrust and Prices," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 84-95, April.
    8. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    9. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    cartels; communication; stability;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L00 - Industrial Organization - - General - - - General

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