Cheap Talk, Monitoring and Collusion

David Spector ()
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David Spector: Paris School of Economics and CNRS

Review of Industrial Organization, 2022, vol. 60, issue 2, No 3, 193-216

Abstract: Abstract Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication.

Date: 2022
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DOI: 10.1007/s11151-021-09851-w

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