duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

mathematical structure of a bilevel strategic pricing model abstract this paper is concerned with the characterization of optimal strategies for a service firm acting in an oligopolistic environment the decision problem is formulated as a leader follower game played on a transportation network where the leader firm selects a revenue maximizing price schedule that takes explicitly into account the rational behavior of the customers in the context of our analysis the follower s problem is associated with a competitive network market involving non atomic customer groups the resulting bilevel model can therefore be viewed as a model of product differentiation subject to structural network constraints

punishment strategies in repeated games evidence from experimental markets abstract an experiment is designed to provide a snapshot of the strategies used by players in a repeated price competition game with a random continuation rule one hundred pairs of subjects played the game over the internet with subjects having a few days to make their decisions in each round occasionally subjects are asked to enter one period ahead pricing strategies instead of prices according to the elicited strategies between 90 and 95 of subjects punish less harshly in their initial response to a deviation than implied by the grim trigger strategy and do so in a way that depends on the size of the other subject s deviation future earnings are highest for subjects adopting the tit for tat strategy even after controlling for a subject s past earnings punishment strategies are generally softer and more graduated than implied by a grim trigger strategy and do better as a result

price wars in price setting supergames this paper presents a method of generating price wars in price setting supergames the market is one where symmetric oligopolists produce a differentiated product and use price as a strategic variable prices are posted and can be observed by all there is thus little uncertainty or scope for secret price cutting nevertheless price wars occur they are precipitated by periodic but infrequent demand shocks firms use the wars to learn about changed conditions in the market so that they can calculate the new stationary nash equilibrium learning is modeled in a bayesian fashion via the kalman filter copyright 1989 by the london school of economics and political science

interfirm rivalry in a repeated game an empirical test of tacit collusion rivalry in the vancouver retail gasoline market is modeled as a repeated game service station demand cost and intertemporal reaction functions are estimated from daily data on individual station prices costs and sales these functions are then used to calculate noncooperative and cooperative solutions to the constitutent game and the actual outcome of the repeated game the actual outcome is found to be substantially less lucrative than the monopoly solution nevertheless all stations are better off than if they played their noncooperative strategies in every period copyright 1987 by blackwell publishing ltd

spatial competition and the theory of differentiated markets an introduction spatial economics has been both in the very center of microeconomic theory and at its periphery it has been at the center to the extent that it has followed a tradition taking its roots in hotelling s classic stability in competition paper 15 and has used spatial concepts to explain by analogy the pricing of differentiated commodities it has been at the periphery to the extent that it has considered spatial pricing as observed in real life situations and tried to rationalize and evaluate observed spatial pricing techniques the former approach focuses on f o b pricing which is apparently taken for granted the latter focuses on discriminatory pricing which appears as the most frequently used technique in the industrial world the purposes of this special issue are to bring those two approaches together and to explore some of their analytical possibilities and limitations the philosophy of this introductory paper is to show the need for an integration of both avenues in an analysis of differentiated markets we begin by discussing the assumptions of what we will call the hotellinglosch approach and their implications in terms of the problems they allow us to tackle several papers in this issue contribute new insights in this respect we then undertake a similar exercise for what may be called the greenhutohta approach focusing on spatial price discrimination to discover the possibilities it may provide for an analysis of quality choice at the outset we note that its spatial approach typically implies partition of the

collusion with costly consumer search i use standard consumer search models to study how an increase in market transparency lower search costs or higher share of fully informed consumers affects cartel stability when firms sell horizontally differentiated products cartels become more stable as the search cost increases with homogeneous products by contrast the opposite holds a higher share of fully informed consumers makes collusion less stable when the market is initially sufficiently transparent whereas it happens otherwise if the market is originally little transparent

continuous reaction functions in duopolies abstract friedman and samuelson 1990 games econ behav 2 304 324 have recently shown that continuous reaction functions can support nontrivial outcomes as subgame perfect equilibria in repeated games this paper examines continuous reaction functions in duopolies we first establish a folk theorem showing that any feasible individually rational outcome in the stage game can be supported as a subgame perfect equilibrium outcome in continuous reaction functions given sufficiently high discount factors we then show that the set of discount factors for which outcomes can be supported by continuous reaction functions is at least as large as the corresponding sets under nash reversion trigger strategies and optimal two phase symmetric punishments the implication of these findings is that no generality in terms of possible equilibrium outcomes need be sacrificed in the course of requiring continuity journal of economic literature classification numbers d43 c72

war of attrition evidence from a laboratory experiment on market exit i introduction young industries often undergo a process of shakeout gort and klepper 1982 and klepper 1996 attracting excess firms and gradually shedding them over time more mature industries are likewise often forced to contract in the face of recession or product specific negative demand shocks when an overcrowded industry is forced to shrink which firms exit and which ones survive the conventional answer in economics is that overcrowded industries tend to shed inefficient firms and retain efficient ones we might call this survival of the most efficient a process analogous to natural selection that can adaptively improve the efficiency of industries over time nelson and winter 1982 fudenberg and tirole 1986 model firms exit decisions in overcrowded duopoly markets as wars of attrition and show that the intuition of survival of the most efficient has merit even if firms have little information regarding their costs relative to their competitors however the equilibrium of their game is complex involving a solution to a system of differential equations since neither fortune 500 chief executive officers in the naturally occurring markets nor undergraduate participants in laboratory markets deliberately solve differential equations when deciding whether or not to exit a declining market it is an open question as to how well fudenberg and tirole s rational reconstruction of the exit decision corresponds to the facts of how people make such decisions we report the results of a laboratory experiment designed to answer this question nearly 200 subjects in 16 sessions participated in a total of 3 800 wars of attrition based on fudenberg and tirole s model at the beginning of each period subjects were randomly paired and given a private cost draw that usually induced negative net per second payoffs in a shared market and positive net payoffs per second in monopoly subjects then decided in real time whether and when to exit the market never to return monotonic equilibrium strategy functions predict higher cost inefficient participant exit at an earlier time than their lower cost competitor that is the relatively efficient competitor survives in the market we find that fudenberg and tirole s model organizes our data surprisingly well especially considering its complexity we observe exit by the higher cost firm in 76 of cases when differences between the costs faced by firms are substantial the rate of efficient exit rises to nearly 100 the data on exit times are likewise quite close to the point predictions particularly in the crucial higher portion of the cost distribution that generally governs exit times the median deviation from equilibrium exit times falls to zero by the end and on average subjects earn payouts identical to those predicted in equilibrium our design permits tests of two other conjectures in fudenberg and tirole first our data supports fudenberg and tirole s core comparative static prediction that a decrease in the ex ante likelihood of actually being in a war of attrition leads to an increase in the speed of exit 1 second half of our sessions use costs framed as fixed costs suffered while in the market and half use costs framed as opportunity costs earned by exiting the market there is no evidence that this treatment variable affects exit behavior this isomorphism between gains and losses predicted by standard theory stands in stark contrast to evidence from previous individual decision making experiments suggesting asymmetries in how people react to potential losses and potential gains although wars of attrition have an important place in the game theoretic literature there are surprisingly few experimental studies directly relating to them 2 3 bilodeau childs and mestelman 2004 study a three player full information war of attrition framed as a volunteer game and report widespread failure of equilibrium predictions the predicted volunteer in a subgame perfect nash equilibrium only volunteers 41 of the time

a bilevel model of taxation and its application to optimal highway pricing we consider a bilevel model where the leader wants to maximize revenues from a taxation scheme while the follower rationally reacts to those tax levels we focus our attention on the special case of a toll setting problem defined on a multicommodity transportation network we show that the general problem is np complete while particular instances are polynomially solvable numerical examples are given

rules communication and collusion narrative evidence from the sugar institute case detailed notes on weekly meetings of the sugar refining cartel show how communication helps firms collude and so highlight the deficiencies in the current formal theory of collusion the sugar institute did not fix prices or output prices were increased by homogenizing business practices to make price cutting more transparent meetings were used to interpret and adapt the agreement coordinate on jointly profitable actions ensure unilateral actions were not misconstrued as cheating and determine whether cheating had occurred in contrast to established theories cheating did occur but sparked only limited retaliation partly due to the contractual relations with selling agents jel l13 l41 this paper reexamines the cartel problem by studying the private discussions within one cartel while we find much that is in accord with george j stigler s 1964 basic insight that firms would structure an agreement conscious of their later incentive to cheat on it we also uncover puzzles for established theory and identify elements that a richer theory should encompass especially regarding the role of communication in collusion our window into the inner workings of a cartel is a remarkable series of notes on the weekly meetings of the sugar institute this trade association was formed in december 1927 in the wake of several years of falling margins and excess capacity by 14 firms comprising nearly all the cane sugar refining capacity in the united states it operated until 1936 when the supreme court ruled its practices illegal among the top executives in regular attendance at the meetings was louis v place vice president of mccahan a midsize refinery in philadelphia place who was in charge of all activities of the company except production and raw sugar purchases wrote over 500 pages of single spaced detailed

cost based access regulation and collusion in a differentiated duopoly abstract this paper revisits the conventional doctrine that it is easier to collude among equals applied in the context of vertically related markets in a differentiated duopoly model we study how cost based access price regulation may hinder the sustainability of tacit collusion

standardization and the stability of collusion we characterize the interplay between firms decision in terms of product standardization and the nature of their ensuing market behaviour we prove the existence of a nonmonotone relationship between firms decision at the product stage and their intertemporal preferences c 1998 elsevier science s a

collusion in differentiated duopolies revisited abstract in a letter previously published in this journal rothschild 1992 rothschild r 1992 on the sustainability of collusion in differentiated duopolies economics letters 40 33 37 claims to obtain results in contrast with those obtained by deneckere 1983 deneckere r 1983 duopoly supergames with product differentiation economics letters 11 37 42 we show however that taking correctly into account non negativity constraints on output rothschild s formulation yields the same conclusions as deneckere s

strategic pricing models and interpretation of price war data abstract price wars cartel breakdowns and other seemingly disequilibrium pricing phenomena are examined questions of interest include when do breakdowns occur how long do they last what determines their severity and are they characterized by increased cross sectional price dispersion and or temporal price volatility the first half of the paper explains how the choice of punishment strategy the specification of the stochastic shocks to the system and the assumptions regarding observability determine the pricing dynamics implicit in several theoretical price war models theories are classified into imperfect monitoring models in which players actions cannot be observed learning models in which structural parameters are unknown to the players and cyclical models in which observability is perfect but business cycles affect the difficulty of colluding the second half in contrast examines data on prices actually set by firms in industries which are subject to periodic wars when the models are confronted with the data we can see how well oligopoly theory explains the behavior of the firms in these industries the object of the exercise is not to pick a winner instead the role of industry characteristics in determining pricing dynamics is assessed and the reasons why simple models may fail to explain complex pricing patterns are examined finally directions for future research are suggested by the empirical regularities which are uncovered

on the nature of competition with differentiated products there is an old debate going back to bertrand 1883 and edgeworth 1925 about the fragility of market equilibrium when competition arises among a few sellers it was hotelling s belief that price instability vanishes when products are differentiated hotelling 1929 recently attention was drawn to the fact that even if product differentiation can weaken the forces leading to price instability it cannot eliminate completely the possibility of price cycles d aspremont et al 1979 the purpose of this paper is to show that vertical and horizontal product differentiation do not operate in the same manner a stable market outcome including an endogenous product specification arises more frequently with the former than with the latter horizontal product differentiation is rooted in taste differences more precisely the potential customers have heterogeneous preferences about the proportion in which the attributes of the product should be combined a wide range of substitute products can then survive in the same market simply because each of them combines the various attributes of the product in a proportion suitable to a particular segment of customers between two products in the range the level of some attributes is augmented while that of others is lowered each variety has its own circle of customers exactly as the inhabitants located around a particular shop form its potential market none the less competitors can raid these privileged market shares by adequate price cuts by contrast vertical product differentiation refers to a class of products which cohabit simultaneously on a given market even though customers agree on a unanimous ranking between them between two products in the range the level of all attributes is augmented or lowered the survival of a low quality product then rests on the seller s ability to sell it at a reduced price compensating thereby for the higher a priori attractiveness of a more desirable quality the seller of a low quality product will specialise in the segment of customers whose propensity to spend on the corresponding range of products is low either because they have relatively lower income or relatively less intensive preferences than other customers at the same time the seller of a high quality product will enjoy an absolute advantage over his competitor 2 interestingly it turns out that price and product competition does not lead to the same results in these two situations regarding the stability of the market equilibrium to stress the differences we have chosen to concentrate on two

pareto efficiency and weighted majority rules we consider the design of decision rules in an environment with two alternatives independent private values and no monetary transfers the utilitarian rule subject to incentive compatibility constraints is a weighted majority rule where agents weights correspond to expected gains given that their favorite alternative is chosen it is shown that a rule is interim incentive efficient if and only if it is a weighted majority rule and we characterize those weighted majority rules that are ex ante incentive efficient we also discuss efficiency in the class of anonymous mechanisms and the stability of weighted majority rules

sustaining collusion when the choice of strategic variable is endogenous abstract this paper addresses the problem of maintaining collusion in a differentiated duopoly when both the prospective deviant and punisher are free to choose between price and output as their strategic variables we show that the traditional formulation of the supergame in which firms commit for the duration to either price or output as their single common strategic variable overlooks the possibility of an asymmetric equilibrium in the punishment phase the results obtained here have obvious parallels with those found in the comparative statics literature

price versus quantity rules in dynamic competition the case of nonrenewable natural resources price and quantity competition are compared in the dynamic game framework of a nonrenewable natural resource duopoly it is shown that a price decision rule quantity decision rule strategy dominates in terms of a higher present value of the initial resource stocks if the resources are complements substitutes this result is shown to hold for subgame perfect equilibria it holds although equilibrium price paths resulting from those two types of strategies will cross it is shown however that even though the price trajectories cross initial equilibrium prices resulting from the price rule strategy will be lower than the initial equilibrium prices resulting from the quantity rule strategy copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

oligopoly supergames some empirical evidence on prices and margins this paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games the authors examine two supergame models which generate very different predictions about the cyclical behavior of prices and margins evidence on the levels of price cost margins indicates that oligopolies achieve equilibria that more closely resemble a one shot cournot nash outcome than monopoly the authors find however that industries with high price cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries little evidence of price wars during either recessions or booms is found copyright 1987 by blackwell publishing ltd

on credible delegation by oligopolists a discussion of distribution channel management several papers in the recent marketing literature have suggested that delegation in distribution e g the use of independent middlemen helps manufacturers to precommit strategically to profit enhancing competitive actions further the literature suggests that the profitability of such actions depends on market structure we challenge these conclusions here this is done in two steps first we perform an analysis of the entire class of models which have been used in the literature using internally consistent assumptions about market structure and contracting the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation obviously this is not what we see in the real world next we relax a key hidden assumption namely that all intra channel agreements are observable to competitors without this assumption the usual results unravel unless channel members can offer credible guarantees that unobservable agreements do not exist the strategic effects of delegation disappear since these guarantees are virtually impossible to maintain credibly we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability we conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels and make some suggestions about promising avenues for future theory research in channel structure

a theory of conscious parallelism abstract in this paper the rationality of conscious parallelism is studied within the context of a dynamic oligopoly model the doctrine of conscious parallelism is modelled as the outcome of a signalling game in which the rules of response are specified axiomatically this will result in a unique solution to the oligopoly problem that is based on firms need to have consistent expectations that subsequently generate collusive behaviour this model can then be used to more precisely define the conditions that facilitate or limit oligopolistic coordination as found in the traditional industrial organization literature

meatpacker conduct in fed cattle pricing an investigation of oligopsony power market power in regional fed cattle markets is measured with an econometric model which links behavior of the margin between boxed beef and fed cattle prices to an economic model of conduct a noncooperative game theoretic model suggests that for tacitly collusive pricing behavior to persist in equilibrium oligopsonists must follow a discontinuous pricing strategy meatpackers pay low prices for cattle during cooperative phases and purchase cattle aggressively during noncooperative phases tests for cooperative noncooperative conduct and measures of market power are presented fed cattle prices in four direct trade regions in the central united states are examined evidence of cooperative noncooperative conduct is present in all markets but has declined over time varying conduct across markets and over time suggests it is important to continue monitoring fed cattle markets to assure a competitive environment

the arm s length principle and tacit collusion the arm s length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm s length with each other this paper examines the effect of the arm s length principle on dynamic competition in two alternative models of vertical market structure it is shown that the arm s length principle renders tacit collusion more stable and can reduce welfare when collusion targets the maximum collusive profit achievable in each environment

bertrand vs cournot competition in distribution channels with upstream collusion abstract this paper applies repeated game theory to tacit collusion in dynamic distribution channels based on the grim trigger strategy we examine competitors choice of the strategic instruments in distribution channels comprised of two manufacturers distributing through two independent retailers respectively first the paper discusses the upstream manufacturers collusion incentives under different competition modes for downstream retailers and shows that the manufacturers collusion incentives critically depend on the retailers competition modes and the discount factor we then identify the endogenous competition modes in equilibrium we find that upstream collusion is easier to sustain under cournot competition than bertrand competition and it is least likely to be sustained under mixed bertrand cournot competition furthermore in equilibrium retailers can engage in bertrand cournot or mixed bertrand cournot competition depending on the discount factor and the degree of product differentiation this study provides the rationale behind the emergence of various modes of competition in practical dynamic distribution channels especially the recent mixed bertrand cournot competition mode finally the manufacturers collusion incentives and retailers competition modes jointly affect the manufacturers profitability and social welfare we also discuss how the manufacturers profitability and social welfare vary under different competition modes taking upstream collusion into consideration we find that upstream collusion increases decreases social welfare for complements substitutes

subgame perfect reaction function equilibria in discounted duopoly supergames are trivial abstract this paper is concerned with infinitely repeated duopoly games with discounting a question which has been open since friedman s rev econ stud 35 1968 257 272 reaction function article is settled for a general class of games the question is wheter nontrivial reaction function equilibria can be subgame perfect this question is answered in the negative such equilibria must be trivial in the sense of prescribing the stage game noncooperative equilibrium actions in every period independent of prior history

choosing a common project experimental evidence on the multibidding mechanism abstract perez castrillo d wettstein d 2002 choosing wisely a multibidding approach american economic review 5 1577 1587 and veszteg r f 2004 multibidding game under uncertainty working paper 14 04 universidad de navarra propose the use of a multibidding mechanism for situations where agents have to choose a common project examples are decisions involving public goods or public bads we report experimental results that test the practical tractability and effectiveness of multibidding mechanisms in environments where agents hold private information concerning their valuation of the projects the mechanism performed quite well in the laboratory providing the ex post efficient outcome in roughly three quarters of the cases across the treatments moreover the largest part of the subject pool formed their bids according to theoretical bidding behavior

opec s oil exporting strategy and macroeconomic in stability aguiar conraria and wen 2008 argued that dependence on foreign oil raises the like lihood of equilibrium indeterminacy economic instability for oil importing countries we argue that this relation is more subtle the endogenous choices of prices and quantities by a cartel of oil exporters such as the opec can aect the directions of the changes in the likelihood of equilibrium indeterminacy we show that uctuations driven by self ful lling expectations under oil shocks are easier to occur if the cartel sets the price of oil but the re sult is reversed if the cartel sets the quantity of production these results oer a potentially interesting explanation for the decline in economic volatility i e the great moderation in oil importing countries since the mid 1980s when the opec cartel changed its market strategies from setting prices to setting quantities despite the fact that oil prices are far more volatile today than they were 30 years ago

price behavior in a dynamic oligopsony washington processing potatoes punishment strategies are necessary to sustain a collusive oligopsony in a repeated game context when demand is uncertain and only market variables are observable this article proposes a test for tacit collusion among potato processors in washington state using a dynamic regime switching model estimated with a finite mixture method the results support the existence of punishment and collusive regimes and show the welfare losses due to anti competitive behavior on the part of processors to be significant processors oligopsony power is enhanced by higher domestic production imports and existing stocks but it is ameliorated by high capacity utilization rates and exports copyright 2001 oxford university press

on the stability of multimarket collusion in price setting supergames abstract in this paper we examine how trade liberalization affects collusive stability in the context of multimarket interactions the model we consider is a segmented markets duopoly with differentiated goods in which price setting firms pool their incentive constraints across markets to sustain their most collusive outcome we find that when goods are very close substitutes and trade costs are sufficiently high a marginal reduction in trade costs facilitates collusion exactly the opposite is true if for any given degree of product substitutability trade costs are sufficiently low we also study the dependence of multimarket collusion on product differentiation

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

multiperson bargaining over two alternatives abstract we present a continuous time model of multiperson bargaining with incomplete information where only two agreements are possible we show that under mild informational assumptions players behave as if they were representing the other players who prefer the same alternative individually playing a war of attrition against a conglomerate player of the opposite side we also provide a characterization of the perfect bayesian equilibria in undominated strategies of the game which yields a unique outcome in most cases journal of economic literatureclassification numbers c72 c78 d72 d74

non trivial subgame perfect duopoly equilibria can be supported by continuous reaction functions abstract this paper demonstrates that non trivial subgame perfect duopoly equilibria can be supported by continuous reaction functions when previous period actions of both firms are arguments of reaction functions continuity imposes essentially no restrictions on the set of equilibria

quality differentiation and conditional spatial price competition among hotels abstract it is generally accepted that location is the dominant product attribute for hotels accordingly studies on price competition have often utilized fixed geographic boundaries when defining competitive sets when travelers are willing to substitute location and quality however the spatial extent of competition can depend on the hotels quality therefore it can be hypothesized that geographic boundary of price competition among hotels is conditional on quality differentiation through an empirical analysis based on two stage least squares modified to test for spatial price competition the present study finds that hotels compete with more distant neighbors of similar quality than those who are quality differentiated in addition the results also suggest possibility of cooperation among neighboring hotels similar in quality implications and suggestions are presented along with the findings of the study which is expected to contribute to the literature by suggesting a new perspective on the relationship between quality differentiation and price competition among hotels

intertemporal product choice and its effects on collusive firm behavior this study analyzes the collusive behavior of firms in markets characterized by horizontal product differentiation the special features are that product choice is endogenized and that firms may redesign their products intertemporally at a fixed cost the main objective is to examine the relationships between the extent of product differentiation the product redesigning cost and the degree of collusion supportable the findings indicate that flexible product design makes collusion more difficult to sustain since in the event collusion breaks down firms have an incentive to mitigate the severity of punishment by redesigning their products and thus reducing price competition copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

less fighting than expected experiments with wars of attrition and all pay auctions while all pay auctions are well researched experimentally we do not have much laboratory evidence on wars of attrition this paper tries to fill this gap technically there are only a few differences between wars of attrition and all pay auctions behaviorally however we find striking differences as many studies our experiment finds overbidding in all pay auctions in contrast in wars of attrition we observe systematic underbidding

vertical integration raising rivals costs and upstream collusion abstract this paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear as a first step the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated it turns out this is the joint profit maximum of the colluding firms the discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry while the previous literature has found it difficult to reconcile raising rivals costs strategies following a vertical merger with equilibrium behavior in the static game they are subgame perfect in the repeated game studied here

retail price fixity as a facilitating mechanism previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior we develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion a non cooperative equilibrium in fixed retail prices is supported through credible threats to revert to nash pricing if cheating is suspected we test the implications of this model using a two stage ordered probit approach in weekly supermarket pricing data the results show that price fixity does support collusive equilibria among retailers but other factors may also explain retail price behavior

delivered pricing and the impact of spatial differentiation on cartel stability abstract this paper analyzes the impact of spatial differentiation on the sustainability of collusion on delivered prices it shows that the choice of the punishment mechanism that enforces collusion is crucial for determining whether differentiation facilitates cartel pricing or not if punishments are optimal then differentiation tends to facilitate collusion optimal punishments impose minmax profits on deviators independently of the degree of differentiation a high degree of differentiation then renders deviations less profitable since it makes business stealing more costly but does not affect the deviator s punishment profits depending on the transport cost technology excessive differentiation may have a countervailing effect however because it also implies high transport costs for the cartel if collusion is sustained by standard grim trigger punishments instead then collusion may be easiest for minimal differentiation the reason is that competitive and thus grim trigger punishment profits are higher the higher the degree of differentiation

localized competition multimarket operation and collusive behavior this paper studies collusive behavior in a repeated oligopoly model with localized competition also reinterpreted as a model of multimarket operation private information about the rivals past actions naturally arises from these product market structures the resulting communication problems imply that firms should not adopt strategies with too severe punishments infinite grim punishments may be too severe for large discount factors the standard stick and carrot punishments from the perfect public information model are always too severe for all discount factors modified stick and carrot punishments can still be used though for a smaller range of discount factors than the standard stick and carrot punishments

the incentives for cost reduction in a differentiated industry abstract this paper investigates how the incentives for cost reduction in a differentiated industry depend upon the degree of product substitutability when goods are imperfect substitutes both cournot and bertrand competition result in underinvestment in the sense that a social planner would be willing to pay more for a given cost reduction than a profit maximizing firm overinvestment may occur when the goods are sufficiently close substitutes similarly cournot competition provides a stronger incentive to innovate than bertrand competition if the degree of substitutability is low and a weaker incentive if this degree is high

the joint profit maximum as a free entry equilibrium outcome abstract this study investigates the degree of collusion that can be sustained at a free entry equilibrium when the number of active firms is endogenous an increase in the discount factor is found to have two counter acting effects on the incentive for active firms to deviate from the collusive arrangement holding the number of firms fixed a higher discount factor reduces the incentive for cheating according to the standard argument however a higher discount factor also makes entry more profitable since entry entails an initial loss the cost of entry and a future stream of positive profits raising the discount factor then increases the number of active firms which tends to increase the incentive for firms to cheat our analysis shows that the first effect dominates so that the joint profit maximum can be sustained as a free entry equilibrium outcome when the discount factor is sufficiently high

price vs quantity competition in oligopoly supergames abstract in a repeated oligopoly with differentiated products and firms following trigger strategies quantity competition leads to a less efficient outcome than price competition this result contrasts with the repeated duopoly result where price competition is less efficient under certain conditions

efficient voting with penalties abstract simple majority does not reflect the intensity of voters preferences this paper presents an efficient collective choice mechanism with two alternatives when the designer may use non transferable punishments to persuade agents to reveal their private information the designer faces a dilemma a punishment may induce a more correct choice but its cost is socially wasteful the efficient mechanism is a weighted majority weight of each individual is known ex ante and no punishments are applied if preferences are relatively homogeneous eliciting types through punishments in order to construct type specific weights should occur if preference intensity is relatively heterogeneous

the kinked demand curve a game theoretic approach in a simple model of duopoly firms price moves are modelled as an extensive form game where firms can respond to undercutting without delay when firms are not too dissimilar kinked demand strategies enforcing an arbitrary price may be nash equilibria however these strategies are dominated and perfect equilibrium is unique at the minimum optimal common price rather than implying price rigidity kinked demand strategies are a device for ensuring compliance with a collusive price leadership

overcoming incentive constraints by linking decisions consider a bayesian collective decision problem in which the preferences of agents are private information we provide a general demonstration that the utility costs associated with incentive constraints become negligible when the decision problem is linked with a large number of independent copies of itself this is established by defining a mechanism in which agents must budget their representations of preferences so that the frequency of preferences across problems mirrors the underlying distribution of preferences and then arguing that agents incentives are to satisfy their budget by being as truthful as possible we also show that all equilibria of the linking mechanisms converge to the target utility levels the mechanisms do not require transferable utility or interpersonal comparisons of utility and are immune to manipulations by coalitions

symposium on spatial competition and the theory of differentiated markets inclusion of assumptions of the hotelling losch approach spatial price discrimination in the greenhut ohta approach analysis of quality choice spatial approach that typically implies partition of the buyers in sales areas which do not overlap from ebsco

the existence of nash equilibria in reaction functions for dynamic models of oligopoly consider cournot s stability analysis of his mineral spring duopoly cournot 1838 each of the two firms believes that its rival s output in the next period will simply equal that observed currently profit maximization yields reaction functions which are explicitly dynamic and are assumed to govern the actual evolution of the system cournot proved that the system is asymptotically stable in this simplest case cournot s result was shown by theocharis 1960 not to generalize to three or more firms fisher 1961 discusses more general cost and demand functions than those used by cournot even in the case considered by cournot however there is an obvious conceptual objection each firm s output will generally vary from one period to the next flagrantly violating its rival s conjecture some of james friedman s work especially 1968 1973 1976 and 1977 might best be viewed as an attempt to eliminate this delusional quality from dynamic models of oligopoly consider a typical duopoly scenario with two firms making repeated simultaneous quantity determinations friedman more commonly discusses price setting models but these are straightforwardly analogous each firm believes that the other firm s behavior is determined only by the quantity pair selected in the previous period in friedman s work as distinct from cournot s these beliefs are ultimately required to be consistent with the other firm s actual behavior for example firm 2 believes that firm l s output in the current period is given as

collusion in a differentiated duopoly with network externalities abstract conventional wisdom is that collusion between firms will be destabilized when they produce closer substitutes of products we show that in the presence of strong network externalities this result no longer holds and collusion becomes more sustainable for closer substitutes of products under relatively strong network externalities

vancouver s gasoline price wars an empirical exercise in uncovering supergame strategies this paper uses a unique data set to determine which dynamic model of tacit collusion best describes behaviour in a particular industry the area investigated is a region of the vancouver british columbia retail gasoline market players are service station managers who compete daily firms choose price in each period using strategies that depend on prices chosen in the previous period periodically unanticipated demand shocks precipitate price wars when shocks occur the firms in the market must determine the new demand conditions and adjust their strategies from an econometric point of view slopes of intertemporal reaction functions are latent variables the resulting system of equations with time varying parameters is estimated via the kalman filter different repeated game oligopoly models correspond to different transition matrices for the latent variables the models can thus be assessed in terms of their power to explain firm behaviour in this market

on the sustainability of collusion in differentiated duopolies abstract we consider a rule designed to maintain collusion in a duopoly made up of firms producing differentiated products we analyse both price setting and quantity setting models and show that product differentiation plays a crucial role in determining the effectiveness of this rule our results contrast with those obtained by earlier writers

subgame perfect equilibrium with continuous reaction functions abstract earlier efforts by friedman examined infinite horizon oligopolies trying and failing to show existence of subgame perfect nash equilibria with the firms strategies being continuous reaction functions here in a typical game theoretic model with discounting we prove the existence of such equilibria the equilibrium strategies mimic trigger strategies in their method of operation but are continuous so that small defections from equilibrium actions result in small per period punishments we prove our results by constructing equilibria in a fashion analogous to that found in proofs of folk theorems in repeated games

conjectural variations strategies in accelerated cournot games abstract a family of constant conjectural variations strategies is defined and examined in the natural context of infinitely repeated cournot duopoly games with discounting it is shown that any pair of linear reaction functions in the family gives rise to a unique pair of quantities in stationary equilibrium as the conjectures and discount parameter vary the sum of the stationary quantities will vary anywhere between the competitive and the monopoly outcomes equilibrium is strongly stable and credible in the sense of exhibiting a variation of selten s subgame perfection provided that firms can react quickly enough to one another s actions

collusion between two sided platforms abstract we study the price and welfare effects of collusion between two sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market and whether users single home or multi home our most striking result is that one sided collusion leads to lower resp higher prices on the collusive resp competitive side if the cross group externalities exerted on the collusive side are positive and sufficiently strong one sided collusion may therefore benefit the users on the collusive side and harm the users on the competitive side our findings have implications regarding cartel detection and damages actions

an experimental study of voting with costly delay a conclave is a voting mechanism in which a committee selects an alternative by voting until a sufficient supermajority is reached we study experimentally welfare properties of simple three voter conclaves with privately known preferences over two outcomes and waiting costs the resulting game is a form of multiplayer war of attrition our key finding is that consistent with theoretical predictions when voters are ex ante heterogeneous in terms of the intensity of their preferences the conclave leads to efficiency gains relative to simple majority voting we also compare welfare properties of a static versus a dynamic version of a conclave when social cost of waiting is taken into account the dynamic conclave is superior in terms of welfare than its static version

tacit collusion with price matching punishments abstract tacit collusion is explored under a strategy in which loosely speaking firms match the lowest price set by any firm in the previous period conditions are provided under which this strategy supports collusive outcomes in a subgame perfect equilibrium in contrast to traditional results the highest collusive price is always lower than the monopoly price it corresponds to the unique nash equilibrium price when upward and downward price deviations are matched our paper provides a game theoretic interpretation of the old kinked demand curve theory which unlike earlier attempts does not depart from standard timing assumptions to do so

price wars and the stability of collusion a study of the pre world war i bromine industry between 1885 and 1914 us bromine producers colluded to raise prices and pro ts this collusion was disrupted by price wars bromine price wars are compared with the green porter and abreu pearce stacchetti models some price wars resulted from the imperfect monitoring problems which motivate these models several empirical implications of the aps model are borne out but the bromine industry s price wars were generally milder than contemplated by aps more severe price wars were part of a bargaining process in which rms tried to force renegotiation to a new collusive equilibrium with a diierent distribution of rents

tacit collusion with imperfect monitoring in the canadian manufacturing industry an empirical study this article undertakes a cross sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by abreu pearce and stachetti 1986 specifically we assess the prevalence of a first order markovian process for alternating between price wars and collusive periods through nonparametric tests the analysis focuses on 30 different industries in canada the evidence provides weak support for optimal collusion in one industry which is consistent with the idea that such kind of collusive arrangements is unusual or if collusion is all too common that price wars as deviations from collusion are rare

reply on comment to small firms and the merger mania research on performance differences between small and large firms is booming it emerges relatively separated from the mainstream industrial organization literature inspired by levy s comment on an earlier paper we try to bridge the gap between the two areas especially we screen non cooperative game theoretical models for predictions on performance differences most of them forecast higher profits for larger firms but there exist also some models which predict the opposite for very specific circumstances

transparency on the consumer side and tacit collusion abstract this paper investigates the effects on tacit collusion of increased market transparency on the consumer side of a market in a differentiated hotelling duopoly increasing market transparency increases the benefits to a firm from undercutting the collusive price it also decreases the punishment profit the net effect is that collusion becomes harder to sustain in the limiting homogeneous market the effect vanishes here market transparency does not affect the possibilities for tacit collusion

endogenous product design in an infinitely repeated game abstract this paper examines the incentives to differentiate products horizontally in a repeated game when redesigning costs are negligible the main findings are the following if firms are patient with respect to future profits i e the discount factor is high they will choose an intermediate degree of differentiation the lower the discount factor the more firms are forced to increase differentiation in order to keep collusion from breaking down unless the discount factor is extremely low prices will be unconstrained monopoly prices

prisoners dilemma in duopoly super games abstract the choice between quantity and price in order to stabilize collusion is modeled here it is shown that this relocates the prisoners dilemma backward from the market stage to the stage where the market variable is chosen in order to sustain collusion and where discount rates appear as the payoffs likewise a prisoners dilemma arises also when both the market variable and the type of behavior cooperative or non cooperative are simultaneously chosen journal of economic literature classification numbers c72 d43 l13

on continuous reaction function equilibria in duopoly supergames with mean payoffs abstract continuous reaction function equilibria are studied in supergames in which the stage game resembles a standard duopoly game and the evaluation relations are according to the limit of the means it is proven that collusive i e single period game non nash equilibrium stationary outcomes are supported in subgame perfect equilibrium by linear reaction function pairs conversely it is shown that linear reaction equilibria are in essence typical in the class of subgame perfect continuous reaction equilibria further the multiple equilibrium problem of the folk theorem is shown to be significantly diminished in restricting attention to subgame perfect linear reaction equilibria

the generalized war of attrition abstract we model a war of attrition with n k firms competing for n prizes in a natural oligopoly context the k 1 lowest value firms drop out instantaneously even though each firm s value is private information to itself in a standard setting context in which every competitor suffers losses until a standard is chosen even after giving up on its own preferred alternative each firm s exit time is independent both of k and of other players actions our results explain how long it takes to form a winning coalition in politics solving the model is facilitated by the revenue equivalence theorem jel d43 d44 l13 o30

collusion among asymmetric firms the case of different discount factors abstract this study investigates collusive behavior among asymmetric firms for this purpose we develop a selection criterion for deriving a unique collusive outcome and apply it to the case when firms have different discount factors our analysis reveals that for collusion to be self enforcing it is unnecessary that all firms have sufficiently high discount factors but rather only that firms on average have a sufficiently long run view the optimal collusive outcome entails a strict ordering of output quotas in which firms with relatively low discount factors receive a disproportionate share of market demand as found in the case of a common discount factor a fall in a firm s discount factor reduces the likelihood of successful collusion this effect reduces firm profits on the other hand in the event that firms can collude a lowering of a firm s discount factor increases its output quota so that its profits rise

an anatomy of cartel contracts we study cartel contracts using data on 18 contract clauses of 109 legal finnish manufacturing cartels one third of the clauses relate to raising profits the others deal with instability through incentive compatibility cartel organization or external threats cartels use three main approaches to raise profits price market allocation and specialization these appear to be substitutes choosing one has implications on how cartels deal with instability simplifying we find that large cartels agree on prices cartels in homogenous goods industries allocate markets and small cartels avoid competition through specialization

collusive price rigidity under price matching punishments by analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price matching punishment strategy we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close this provides game theoretic support for the results of the kinked demand curve in contrast to the kinked demand curve it also generates predictions regarding the level and the determinants of the best collusive price which in turn has implications for the corresponding collusive profits the relationships between such price rigidity and the expected duration of a high cost phase the degree of product differentiation and the number of firms in the market are also investigated

do low price guarantees guarantee low prices evidence from competition between amazon and big box stores it has long been understood in theory that price match guarantees can be anticompetitive but to date scant empirical evidence is available outside of some narrow markets this paper broadens the scope of empirical analysis studying a wide range of products sold on a national online market using an algorithm that extracts data from charts i obtain a novel source of data from online price trackers i examine prices of goods sold on amazon before and after two big box stores target and best buy announced a guarantee to match amazon s prices employing both difference in difference and regression discontinuity approaches i robustly estimate a positive causal effect of six percentage points the effect was heterogeneous with larger price increases for initially lower priced items my results support anticompetitive theories which predict price increases for amazon a firm that did not adopt the guarantee and are consistent with plausible mechanisms for the heterogeneous impact

product differentiation in spatial cournot markets abstract we introduce to the spatial cournot markets model the inverse demand function of deneckere economics letters 11 1983 37 that allows product differentiation the circular model s outcome alters depending on if goods are complements or substitutes while the linear model results in central agglomeration

endogenous quality choice price vs quantity competition two versions of a vertical product differentiation model one with fixed and the other with variable costs of quality are analyzed to study how the hypotheses of price versus quantity competition affect equilibrium solutions product differentiation arises under all the scenarios considered contrasting previous findings of symmetric quality choices under cournot behavior however to relax harsher market competition firms differentiate more under bertrand than under cournot a simple welfare measure also indicates that the economy is better off when firms compete on prices with fixed costs of quality not only consumer but also producer surplus is higher under price competition copyright 1993 by blackwell publishing ltd

the effects of product differentiation on collusive pricing abstract using the spatial competition framework of hotelling 1929 this paper explores the relationship between the degree of product differentiation and the ability of firms to collude with respect to price we show that the minimum discount factor required to support the joint profit maximum as an equilibrium outcome monotonically increases as products become better substitutes when the joint profit maximum cannot be supported the optimal collusive price is shown to decline as products become more substitutable these findings suggest that firms producing stronger substitutes tend to find it tougher to collude in terms of their product price

mechanisms for efficient voting with private information about preferences we experimentally study behavior in a simple voting game where players have private information about their preferences with random matching subjects overwhelmingly follow the dominant strategy to exaggerate their preferences which leads to ineciency we analyze an exogenous linking mechanism suggested by jackson and sonnenschein 2007 as well as repeated interaction in dierent settings which could allow endogenous linking mechanisms to evolve we find that applying the exogenous mechanism captures nearly all achievable eciency gains whereas repeated interaction leads to significant gains in truthful representation and eciency only in

price or quantity in tacit collusion abstract we investigate the choice of market variable price or quantity of an optimal implicit cartel if the discount factor is high the cartel can realize the monopoly profit in both cases otherwise it is optimal for the cartel to rely on quantities in the collusive phase if goods are substitutes and prices if goods are complements the reason is that this minimizes the gains from deviations from collusive play

delegation and firms ability to collude abstract in a model of repeated cournot competition under complete information we show that delegation has no effect on cartel stability if managers collude while it may hinder cartel stability when owners collude in setting the incentive schemes if owners can choose whether to delegate or keep control of their respective firms and both groups of individuals collude or play non cooperatively in their respective variables according to the level of intertemporal discount factor then if managers are not able to collude in output levels owners delegation decision is non monotone in the discount factor

cartel stability and product differentiation abstract this paper employs a supergame theoretic model of collusion to analyze the effects of different levels of product differentiation on cartel stability in contrast to earlier work the ability of the parties to reach an agreement is assumed here the focus is on how greater product homogeneity increases both the gain to cheating on a collusive agreement and the magnitude of the punishments that follow a defection the total effect on the likelihood a cartel is stable is therefore unclear two particular differentiated products models are then used to demonstrate that contrary to the conventional view greater homogeneity can reduce cartel stability