Stochastic Market Sharing, Partial Communication and Collusion

Gerlach, Heiko A.

doi:10.2139/ssrn.982323

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Stochastic Market Sharing, Partial Communication and Collusion

IESE Business School Working Paper No. 674

32 Pages Posted: 24 Apr 2007 Last revised: 16 Apr 2020

See all articles by Heiko A. Gerlach

Heiko A. Gerlach

University of Queensland - School of Economics

Date Written: January 1, 2007

Abstract

This paper analyzes the role of communication between firms in an infinitely repeated Bertrand game in which firms receive an imperfect private signal of a common value i.i.d. demand shock. It is shown that firms can use stochastic, inter-temporal market sharing as a perfect substitute for communication in low-demand states. Therefore, partial communication in high-demand states is sufficient to achieve the most collusive, full communication outcome. And partial communication in low-demand states does not improve on the equilibrium without communication. Communication in high-demand states allows firms to coordinate their pricing, choose the most efficient uninformed price and avoid price wars. I demonstrate that under some conditions consumers are better off with communication among colluding firms.

Keywords: Stochastic market sharing, communication, collusion, competition policy.

JEL Classification: L41, l13, D82

Suggested Citation: Suggested Citation

Gerlach, Heiko A., Stochastic Market Sharing, Partial Communication and Collusion (January 1, 2007). IESE Business School Working Paper No. 674, Available at SSRN: https://ssrn.com/abstract=982323 or http://dx.doi.org/10.2139/ssrn.982323