Tacit Collusion under Fairness and Reciprocity

Doruk Iris and Luis Santos-Pinto ()

Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) from Université de Lausanne, Faculté des HEC, DEEP

Abstract: This paper explores the implications of fairness and reciprocity in dynamic market games. A reciprocal player responds to kind behavior of rivals with unkind actions (destructive reciprocity), while at the same time, it responds to kind behavior of rivals with kind actions (constructive reciprocity). The paper shows that for general perceptions of fairness, reciprocity facilitates collusion in dynamic market games. The paper also shows that this is a robust result. It holds when players' choices are strategic complements and strategic substitutes. It also holds under grim trigger punishments and optimal punishments.

Keywords: fairness; reciprocity; collusion; repeated games (search for similar items in EconPapers)
JEL-codes: D43 D63 L13 L21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-gth
Date: 2008-10
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Persistent link: http://EconPapers.repec.org/RePEc:lau:crdeep:09.03

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