Collusion Among Firms with Short-Lived Members

Abstract

This paper studies a class of repeated games played between two identical firms. Each firm consists of overlapping generations of short-lived members. The stage game is either price or quantity competition in a homogeneous good market. We consider whether short-lived members' strategies exist that implement the firm's grim-trigger strategy. We show that if each firm consists of more than two generations, the strategy is implementable with a type of seniority system under both price and quantity competition; if the firm consists of only two generations, the strategy under price competition is implementable, while that under quantity competition is not.

Keywords: Repeated games played by firms, grim-trigger strategy, overlapping generations of members, communication

JEL Classification: C72, C73, D82, J31