Date of this Version
Research in Economics
Unlawful collusion is when firms have a mutual understanding to coordinate their behavior for the purpose of achieving a supracompetitive outcome. Given the legal focus on mutual beliefs, this paper explores the role of mutual beliefs in producing collusion. Focusing on price leadership, firms are assumed to commonly believe that price increases will be at least matched but lack any shared understanding about who will lead, when they will, and at what prices. Sufficient conditions are derived which ensure that supracompetitive prices emerge. However, price is bounded below the maximal equilibrium price.
© 2017. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
collusion, price leadership, epistemic game theory
Harrington, J. E. (2017). A Theory of Collusion with Partial Mutual Understanding. Research in Economics, 71 (1), 140-158. http://dx.doi.org/10.1016/j.rie.2016.11.005
Date Posted: 27 November 2017
This document has been peer reviewed.