Collusion under Payoff Fluctuations

36 Pages Posted: 17 Jun 2009 Last revised: 22 May 2012

See all articles by Yosuke Yasuda

Yosuke Yasuda

Osaka University - Graduate School of Economics

Takako Fujiwara-Greve

Keio University - Faculty of Economics

Date Written: May 21, 2012

Abstract

Theoretical literature on collusion has focused on a specific formulation of payoff fluctuations, namely by demand shocks, and showed that payoff fluctuations are bad for collusion. Introducing general payoff fluctuations, we show that (i) payoff fluctuations may strictly reduce the minimum discount factor to sustain collusion and (ii) both mutual cooperation and defection can arise as the outcome of the best symmetric equilibrium. The former result implies that payoff fluctuations can facilitate collusion. The latter provides a rationale for the coexistence of cartels and price wars (as the reversion to noncooperative actions) in a single collusive behavior.

Keywords: collusion, fluctuations, price war, prisoner's dilemma, repeated game

JEL Classification: C73, D43, L13

Suggested Citation

Yasuda, Yosuke and Fujiwara-Greve, Takako, Collusion under Payoff Fluctuations (May 21, 2012). Available at SSRN: https://ssrn.com/abstract=1420822 or http://dx.doi.org/10.2139/ssrn.1420822

Yosuke Yasuda (Contact Author)

Osaka University - Graduate School of Economics ( email )

1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan

Takako Fujiwara-Greve

Keio University - Faculty of Economics ( email )

2-15-45 Mita, Ninato-ku
Tokyo 1088345
Japan

Register to save articles to
your library

Register

Paper statistics

Downloads
284
Abstract Views
1,750
rank
107,915
PlumX Metrics