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Impossibility of Collusion under Imperfect Monitoring with Flexible Production

Andrzej Skrzypacz and Yuliy Sannikov
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Yuliy Sannikov: U of California, Berkeley

Research Papers from Stanford University, Graduate School of Business

Abstract: We show that it is impossible to achieve collusion in a duopoly when (1) goods are homogenous and firms compete in quantities, (2) new, imperfect information arrives continuously, without sudden events and (3) firms are able to respond to this new information quickly. The result holds even if we allow for asymmetric equilibria or monetary transfers. The intuition is that the flexibility to respond to new information quickly unravels any collusive scheme and that signals about the aggregate behavior only cannot be used effectively to provide individual incentives via transfers. Our result applies both to a simple stationary model and a more complicated one with prices following a mean-reverting Markov process.

Date: 2005-05
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Journal Article: Impossibility of Collusion under Imperfect Monitoring with Flexible Production (2007) Downloads
Working Paper: Impossibility of Collusion under Imperfect Monitoring with Flexible Production (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:1887

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