Abstract
A dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at Cournot quantities for a period of fixed duration whenever the market price falls below some trigger price. In this model firms can observe only their own production level and a common market price. The market demand curve is assumed to have a stochastic component, so that an unexpectedly low price may signal either deviations from collusive output levels or a "downward" demand shock.
Original language | English (US) |
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Pages (from-to) | 313-338 |
Number of pages | 26 |
Journal | Journal of Economic Theory |
Volume | 29 |
Issue number | 2 |
DOIs | |
State | Published - Apr 1983 |
Funding
* I have benefitted from the comments of James Friedman, Edward Green, Bengt Holmstrom, Andrew Postlewaite, Joseph Stiglitz, and Robert Willig, and from the financial support of the Canada Council and a Sloan Foundation grant to Princeton University. An earlier version of this paper was presented at the 1981 North American Summer Meeting of the Econometric Society in San Diego, California.
ASJC Scopus subject areas
- Economics and Econometrics