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Tacit collusion under interest rate fluctuations
Author(s) -
Bó Pedro Dal
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2007.tb00082.x
Subject(s) - tacit collusion , collusion , economics , volatility (finance) , monetary economics , microeconomics , discounting , scope (computer science) , financial economics , econometrics , finance , computer science , programming language
Previous literature has shown that demand fluctuations affect the scope for tacit collusion. I study whether discount factor fluctuations can have similar effects. I find that collusion depends not only on the level of the discount factor but also, and more surprisingly, on its volatility. Collusive prices and profits increase with a higher discount factor level, but decrease with its volatility. These results have important implications for empirical studies of collusive pricing, the role that collusive pricing may play in economic cycles and the study of cooperation in repeated games.