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Impossibility of Collusion under Imperfect Monitoring with Flexible Production
The American Economic Review
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 aggregatedoi:10.1257/aer.97.5.1794 fatcat:k4xma6irvnalji6dghn6ore4iy