On Communication and Collusion
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.
|Work Title||On Communication and Collusion|
|License||Public Domain Mark 1.0|
|Deposited||August 02, 2021|
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