User:Jguzmanb
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Collusion can take many forms. It can be explicit, tacit or implicit, or any combination of the two. Since explicit collusion or cartels is usually banned by antitrust law generally "tacit collusion" is more used in markets. As already mentioned, tacit collusion is a market conduct that enables firms to obtain Profits higuer than in a strictly non-cooperative outcome. On the other hand tacit collusion can arise only if firms interact repeatedly, because they may be able to maintain higher prices by tacitly agreeing that any deviation from the collusive path would trigger some retaliation (and this strategy requires a dynamic environment). For being sustainable, retaliation must be sufficiently likely and costly to outweigh the short-term benefits from “cheating” on the collusive path.
The punishment is crucial in the collusion study. While Nash reversion forever is the most traditional retaliation (some times called “trigger strategy”), there exists others. Abreu’s “optimal penal codes” are optimal in the sense that, all else equal, the associated critical discount factor above which collusion is indeed stable is lower than or at most equal to any corresponding critical threshold produced by other forms of punishments, i.e. the infinite Nash reversion.
- Textbooks and general reference texts
- Tirole, J. (1988) The Theory of Industrial Organization, MIT Press, Cambridge MA (An organized introduction to industrial organization)
- Vives, X. (1999) Oligopoly pricing, MIT Press, Cambridge MA (readable; suitable for advanced undergraduates.)
- Papers on punishments in tacit collusion
- Abreu, D. (1986). Extremal equilibria of oligopolistic supergames, Journal of Economic
Theory 39, 191-225.
- Abreu, D. (1988). On the theory of infinitely repeated games with discounting, Econometrica
56, 383-396.
- Friedman, J. (1971). A non-cooperative equilibrium for supergames, Review of Economic
Studies 38, 1-12.
