Impossibility of Collusion Under Imperfect Monitoring with Flexible Production

Stanford GSB Research Paper No. 1887

37 Pages Posted: 28 May 2005

See all articles by Andrzej Skrzypacz

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

Yuliy Sannikov

University of California, Berkeley - Department of Economics; Princeton University - Department of Economics

Date Written: May 2005

Abstract

We show that it is impossible to achieve collusion in a duopoly when (1) goods are homogenous and firms compete in quantities, (2) new, imperfect information arrives continuously, without sudden events and (3) firms are able to respond to this new information quickly. The result holds even if we allow for asymmetric equilibria or monetary transfers. The intuition is that the flexibility to respond to new information quickly unravels any collusive scheme and that signals about the aggregate behavior only cannot be used effectively to provide individual incentives via transfers. Our result applies both to a simple stationary model and a more complicated one with prices following a mean-reverting Markov process.

Keywords: Economic theory, microeconomics, dynamic games, collusion

JEL Classification: C73, L12, L4

Suggested Citation

Skrzypacz, Andrzej and Sannikov, Yuliy, Impossibility of Collusion Under Imperfect Monitoring with Flexible Production (May 2005). Stanford GSB Research Paper No. 1887. Available at SSRN: https://ssrn.com/abstract=729243 or http://dx.doi.org/10.2139/ssrn.729243

Andrzej Skrzypacz (Contact Author)

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-736-0987 (Phone)
650-725-9932 (Fax)

Yuliy Sannikov

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Princeton University - Department of Economics

Princeton, NJ 08544-1021
United States

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