Cartel pricing dynamics and discount factor uncertainty

Anton-Giulio Manganelli

Finance Research Letters, 2023, vol. 56, issue C

Abstract: The gradual rise of prices is reported in vast evidence of the cartel literature. This paper characterizes cartel pricing dynamics in a duopoly when the discount factor of one firm is private information. Raising prices gradually helps the common information firm to reduce the incentives to deviate of the private information firm and increases the probability that both firms get higher continuation profits. There exist parameter sets where it is optimal for both firms to raise prices gradually instead of setting the maximal price immediately.

Keywords: Cartel pricing dynamics; Private information; Discount factor (search for similar items in EconPapers)
JEL-codes: L13 L20 L41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004221

DOI: 10.1016/j.frl.2023.104050

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