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Willy Lefez, TSE Print
Friday, 01 December 2017, 12:15 - 13:15

Willy Lefez, Toulouse School of Economics

Collusion under Incomplete Information on the Discount Factor

Abstract : The gradual increase of prices at the start of collusion is a recurrent pattern that has been observed in many discovered cartels and in lab experiments. This paper seeks to capture this pattern in a model where firms have private information as to their respective discount rate. In a repeated Bertrand pricing duopoly game we show that, in order to maximize their payoffs while preventing low types from mimicking, patient firms adopt a price scheme which feature a transition phase. Prices gradually increase over time before reaching the highest sustainable price. We determine the best speed of price increase and the delay before which the best price level is attained. We also characterize the Payoff frontier for a class of strategies and exhibit an essential trade-off which produces a smooth transition phase.

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