Firm Size Small firms at disadvantage negotiating and contract costs depend on number of rivals. History of retaliation where market history shows that retaliation is effective, tacit collusion will be successful. Posted prices if prices are posted, the costs of punishing cheaters is higher. Secret prices if prices vary among customers and variance is not known to customers, punishing cheaters is less costly. Cannot determine who to punish Punishment doled out to the innocent.
Consumers value high quality, durable products Pay more for such products.
Firms have incentive to cheat on quality claims. Firm that disappoints customers once, loose their business forever. Offer warranties and guarantees to insure customer satisfaction. Similar to infinitely-repeated games. Only difference is accounting for uncertain end to game.