Impossibility of Collusion under Imperfect Monitoring with Flexible Production

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Impossibility of Collusion under Imperfect Monitoring with Flexible Production

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Yuliy Sannikov
Andrzej Skrzypacz

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Andrzej Skrzypacz

Abstract

We show that it is impossible to achieve collusion in a duopoly when (a) goods are homogenous and firms compete in quantities; (b) new, noisy information arrives continuously, without sudden events; and (c) firms are able to respond to new information quickly. The result holds even if we allow for asymmetric equilibria or monetary transfers. The intuition is that the flexibility to respond quickly to new information unravels any collusive scheme. Our result applies to both a simple stationary model and a more complicated one, with prices following a mean-reverting Markov process, as well as to models of dynamic cooperation in many other settings. (JEL D43, L12, L13)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 5 (December)
Pages: 1794-1823
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1794-1823

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Paper
- Skrzypacz, Andrzej & Sannikov, Yuliy, 2005. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," Research Papers 1887, Stanford University, Graduate School of Business. [Downloadable!]
- Yuliy Sannikov & Andrzej Skrzypacz, 2004. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," 2004 Meeting Papers 418, Society for Economic Dynamics.

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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. [Downloadable!] (restricted)
Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-65, Autumn.
Other versions:
- Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics. [Downloadable!]
Other versions:
- Susan Athey & Kyle Bagwell & Chris Sanchirico, 2002. "Collusion and price rigidity," Discussion Papers 0102-38, Columbia University, Department of Economics. [Downloadable!]
- Susan Athey & Kyle Bagwell & Chris Sanchirico, 1998. "Collusion and Price Rigidity," Working papers 98-23, Massachusetts Institute of Technology (MIT), Department of Economics.
- Susan Athey & Kyle Bagwell & Chris Sanchirico, 2004. "Collusion and Price Rigidity," Review of Economic Studies, Blackwell Publishing, vol. 71(2), pages 317-349, 04. [Downloadable!] (restricted)
Abreu, Dilip & Milgrom, Paul & Pearce, David, 1991. "Information and Timing in Repeated Partnerships," Econometrica, Econometric Society, vol. 59(6), pages 1713-33, November. [Downloadable!] (restricted)
Other versions:
- Abreu, D. & Milgrom, P. & Pearce, D., 1990. "Information And Timing In Repeated Partnerships," Papers e-90-14, Stanford - Hoover Institution.
- David G. Pearce & Dilip Abreu & Paul R. Milgrom, 1988. "Information and Timing in Repeated Partnerships," Cowles Foundation Discussion Papers 875, Cowles Foundation, Yale University. [Downloadable!]
Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, UCLA Department of Economics. [Downloadable!]
Other versions:
- Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 2058, UCLA Department of Economics. [Downloadable!]
- Fudenberg, D. & Levine, D.K. & Maskin, E., 1989. "The Folk Theorem With Inperfect Public Information," Working papers 523, Massachusetts Institute of Technology (MIT), Department of Economics.
- Fudenberg, Drew & Levine, David I & Maskin, Eric, 1994. "The Folk Theorem with Imperfect Public Information," Econometrica, Econometric Society, vol. 62(5), pages 997-1039, September. [Downloadable!] (restricted)
Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
Other versions:
- Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January. [Downloadable!] (restricted)
Other versions:
- Hopenhayn, Hugo A. & Skrzypacz, Andrzej, 2001. "Tacit Collusion in Repeated Auctions," Research Papers 1698r2, Stanford University, Graduate School of Business. [Downloadable!]
Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law & Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

David A. Miller, 2005. "The dynamic cost of ex post incentive compatibility in repeated games of private information," Game Theory and Information 0510002, EconWPA. [Downloadable!]
Drew Fudenberg & David K Levine, 2007. "Continuous Time Limits of Repeated Games with Imperfect Public Monitoring," Levine's Working Paper Archive 699152000000000028, UCLA Department of Economics. [Downloadable!]
Other versions:
- Drew Fudenberg & David Levine, 2007. "Continuous Time Limits of Repeated Games with Imperfect Public Monitoring," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(2), pages 173-192, April. [Downloadable!] (restricted)
Drew Fudenberg & David K Levine, 2007. "Repeated Games with Frequent Signals," Levine's Working Paper Archive 814577000000000009, UCLA Department of Economics. [Downloadable!]

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