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COLLUSION, FLUCTUATING DEMAND, AND PRICE RIGIDITY *
Author(s) -
Hanazono Makoto,
Yang Huanxing
Publication year - 2007
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2007.00435.x
Subject(s) - collusion , economics , private information retrieval , rigidity (electromagnetism) , demand shock , microeconomics , shock (circulatory) , bertrand competition , repeated game , monetary economics , econometrics , game theory , mathematics , cournot competition , oligopoly , medicine , statistics , structural engineering , engineering
We study an infinitely repeated Bertrand game in which an i.i.d. demand shock occurs in each period. Each firm receives a private signal about the demand shock at the beginning of each period. At the end of each period, all information but the private signals becomes public. We consider the optimal symmetric perfect public equilibrium (SPPE) mainly for patient firms. We show that price rigidity arises in the optimal SPPE if the accuracy of the private signals is low. We also study the implications of more firms and firms' impatience on collusive pricing.