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 language | English (US) |
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Pages (from-to) | 285-315 |
Number of pages | 31 |
Journal | American Economic Review |
Volume | 106 |
Issue number | 2 |
DOIs | |
State | Published - Feb 2016 |
All Science Journal Classification (ASJC) codes
- Economics and Econometrics