Working Paper: CEPR ID: DP8877
Authors: Maria Bigoni; Jan Potters; Giancarlo Spagnolo
Abstract: Flexibility - the ability to react swiftly to others' choices - facilitates collusion by reducing gains from defection before opponents react. Under imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. The combination of these forces predicts a non-monotonic relationship between flexibility and collusion. To test this subtle prediction we implement in the laboratory an indefinitely repeated Cournot game with noisy price information and vary how long players have to wait before changing output. We find that (i) the facilitating role of flexibility is lost under imperfect monitoring, and (ii) with learning, collusion unravels with low or high flexibility, but not with intermediate flexibility.
Keywords: collusion; cooperation; flexibility; imperfect monitoring; oligopoly; repeated games
JEL Codes: C73; C92; D43; L13; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| flexibility (J62) | collusion (D74) |
| flexibility (J62) | cooperation rates (C71) |
| low flexibility (D20) | cooperation rates (C71) |
| high flexibility (D29) | cooperation rates (C71) |
| intermediate flexibility (Y20) | cooperation rates (C71) |
| flexibility facilitates cooperation (C71) | collusion (D74) |
| high flexibility hinders collusion (D43) | collusion (D74) |