Collusion with Intertemporal Price Dispersion

55 Pages Posted: 11 Mar 2015  

Nicolas de Roos

University of Sydney

Vladimir Smirnov

The University of Sydney - School of Economics

Date Written: March 9, 2015

Abstract

We develop a theory of optimal collusive intertemporal price dispersion. Dispersion clouds consumer price awareness, encouraging firms to coordinate on dispersed prices. Our theory generates a collusive rationale for price cycles and sales. Patient firms can support optimal collusion at the monopoly price. For less patient firms, monopoly prices must be punctuated with fleeting sales. The most robust structure involves asymmetric price cycles resembling Edgeworth cycles. Low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions. However, for sufficiently low attentiveness, price rises are also a concern, limiting the power of obfuscation.

Keywords: Collusion, obfuscation, price dispersion

JEL Classification: L13, D83

Suggested Citation

de Roos, Nicolas and Smirnov, Vladimir, Collusion with Intertemporal Price Dispersion (March 9, 2015). Available at SSRN: https://ssrn.com/abstract=2575947 or http://dx.doi.org/10.2139/ssrn.2575947

Nicolas De Roos (Contact Author)

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

Vladimir Smirnov

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008
Australia

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