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Efficient Budget Balancing Cartel Equilibria with Imperfect Monitoring

Dominique Demougin () and Arthur Fishman ()

Economic Theory, 1991, vol. 1, issue 4, 373-83

Abstract: We modify the infinitely repeated Cournot game with imperfect monitoring of Green and Porter (1984) and Abreu, Pearce and Stacchetti (1986) to include heterogeneous products and the possibility of balanced budget side payments (Holmstrom 1982). It is shown that a transfer mechanism which induces the efficient outcome exists under a reasonable technical assumption in contrast to the preceding authors. Intuitively, the existence of an observable random price vector rather than a single price makes it possible to identify "likely" defectors, eliminating the need for collective punishments.

Date: 1991
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