American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
On Communication and Collusion
American Economic Review
vol. 106,
no. 2, February 2016
(pp. 285–315)
Abstract
We study the role of communication within a cartel. Our analysis is carried out in Stigler's (1964) model of repeated oligopoly with secret price cuts. Firms observe neither the prices nor the sales of their rivals. For a fixed discount factor, we identify conditions under which there are equilibria with "cheap talk" that result in near-perfect collusion, whereas all equilibria without such communication are bounded away from this outcome. In our model, communication improves monitoring and leads to higher prices and profits. (JEL C73, D43, D83, L12, L13, L25)Citation
Awaya, Yu, and Vijay Krishna. 2016. "On Communication and Collusion." American Economic Review, 106 (2): 285–315. DOI: 10.1257/aer.20141469Additional Materials
JEL Classification
- C73 Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L12 Monopoly; Monopolization Strategies
- L13 Oligopoly and Other Imperfect Markets
- L25 Firm Performance: Size, Diversification, and Scope