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On Communication and Collusion

Yu Awaya () and Vijay Krishna

American Economic Review, 2016, vol. 106, issue 2, 285-315

Abstract: We study the role of communication within a cartel. Our analysis is carried out in Stigler's (1964) model of repeated oligopoly with secret price cuts. Firms observe neither the prices nor the sales of their rivals. For a fixed discount factor, we identify conditions under which there are equilibria with "cheap talk" that result in near-perfect collusion, whereas all equilibria without such communication are bounded away from this outcome. In our model, communication improves monitoring and leads to higher prices and profits. (JEL C73, D43, D83, L12, L13, L25)

JEL-codes: C73 D43 D83 L12 L13 L25 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20141469
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Handle: RePEc:aea:aecrev:v:106:y:2016:i:2:p:285-315