Impossibility of Collusion under Imperfect Monitoring with Flexible Production
American Economic Review
no. 5, December 2007
We show that it is impossible to achieve collusion in a duopoly when (a) goods are
homogenous and firms compete in quantities; (b) new, noisy information arrives
continuously, without sudden events; and (c) firms are able to respond to new
information quickly. The result holds even if we allow for asymmetric equilibria
or monetary transfers. The intuition is that the flexibility to respond quickly to new
information unravels any collusive scheme. Our result applies to both a simple stationary
model and a more complicated one, with prices following a mean-reverting
Markov process, as well as to models of dynamic cooperation in many other settings.
(JEL D43, L12, L13)
Sannikov, Yuliy, and Andrzej Skrzypacz.
"Impossibility of Collusion under Imperfect Monitoring with Flexible Production."
American Economic Review,
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
Monopoly; Monopolization Strategies
Oligopoly and Other Imperfect Markets