Flexibility and Collusion with Imperfect Monitoring

33 Pages Posted: 4 Apr 2012

See all articles by Maria Bigoni

Maria Bigoni

University of Bologna - Department of Economics; IZA Institute of Labor Economics

Johannes (Jan) J. M. Potters

Tilburg University - CentER

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: March 2012

Abstract

Flexibility - the ability to react swiftly to others' choices - facilitates collusion by reducing gains from defection before opponents react. Under imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. The combination of these forces predicts a non-monotonic relationship between flexibility and collusion. To test this subtle prediction we implement in the laboratory an indefinitely repeated Cournot game with noisy price information and vary how long players have to wait before changing output. We find that (i) the facilitating role of flexibility is lost under imperfect monitoring, and (ii) with learning, collusion unravels with low or high flexibility, but not with intermediate flexibility.

Keywords: Collusion, Cooperation, Flexibility, Imperfect monitoring, Oligopoly, Repeated games.

JEL Classification: C73, C92, D43, L13, L14

Suggested Citation

Bigoni, Maria and Potters, Johannes (Jan) J. M. and Spagnolo, Giancarlo, Flexibility and Collusion with Imperfect Monitoring (March 2012). CEPR Discussion Paper No. DP8877. Available at SSRN: https://ssrn.com/abstract=2034095

Maria Bigoni (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, Bologna 40126
Italy
+390512098134 (Phone)

HOME PAGE: http://https://www.unibo.it/sitoweb/maria.bigoni/en

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Johannes (Jan) J. M. Potters

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 8204 (Phone)
+31 13 466 3042 (Fax)

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

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