Impossibility of Collusion under Imperfect Monitoring with Flexible Production

Yuliy Sannikov, Andrzej Skrzypacz
2007 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 aggregate
more » ... ior 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. † We thank Drew Fudenberg, Robert Wilson, and seminar participants at the SED 2004, Stanford, University of Iowa Arizona State University and IIOC 2005 for useful comments and suggestions.
doi:10.1257/aer.97.5.1794 fatcat:k4xma6irvnalji6dghn6ore4iy