On communication and collusion

Yu Awaya, Vijay Krishna

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)285-315
Number of pages31
JournalAmerican Economic Review
Volume106
Issue number2
DOIs
StatePublished - Feb 2016

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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