Flexibility and Collusion with Imperfect Monitoring

Giancarlo Spagnolo, Jan Potters and Maria Bigoni

No 8877, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Flexibility - the ability to react swiftly to others' choices - facilitates collusion by reducing gains from defection before opponents react. Under imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. The combination of these forces predicts a non-monotonic relationship between flexibility and collusion. To test this subtle prediction we implement in the laboratory an indefinitely repeated Cournot game with noisy price information and vary how long players have to wait before changing output. We find that (i) the facilitating role of flexibility is lost under imperfect monitoring, and (ii) with learning, collusion unravels with low or high flexibility, but not with intermediate flexibility.

Keywords: Collusion; Cooperation; Flexibility; Imperfect monitoring; Oligopoly; Repeated games. (search for similar items in EconPapers)
JEL-codes: C73 C92 D43 L13 L14 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-bec, nep-com and nep-cta
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Citations: View citations in EconPapers (4)

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