 Demand forecasting, signal precision, and collusion with hidden actionsSimon Martin and Alexander Rasch International Journal of Industrial Organization, 2024, vol. 92, issue C Abstract: We analyze how higher demand-forecasting precision affects firms' chances of sustaining supracompetitive profits, depending on whether actions are observable or hidden. We identify a dual role of improving forecasting ability for situations in which actions are hidden. Improved forecasting ability increases the temptation for firms to deviate, reducing profits; at the same time, such ability reduces and eventually eliminates the uncertainty over whether deviations are occurring. Our framework, in which firms decide on prices and promotional activities, reveals a U-shaped relationship between profits and predictive ability. Generally, collusive profits may increase or decrease in signal precision, depending on action observability, highlighting the importance of industry-specific considerations for regulatory interventions and competition policy. Keywords: Algorithm; Collusion; Demand forecasting; Hidden actions; Signal precision (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:92:y:2024:i:c:s0167718723001054 DOI: 10.1016/j.ijindorg.2023.103036 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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