Thursday, August 13, 2009
Posted by D. Daniel Sokol
Christian Schultz (Department of Economics, University of Copenhagen) analyzes Collusion in markets with imperfect price information on both sides.
ABSTRACT: The paper considers tacit collusion in markets which are not fully transparent on both sides. Consumers only detect prices with some probability before deciding which fi?rm to purchase from, and each fi?rm only detects the other fi?rm's price with some probability. Increasing transparency on the producer side facilitates collusion, while increasing transparency on the consumer side makes collusion more difficult. Conditions are given under which increases in a common factor, affecting transparency positively on both sides, are pro-competitive. With two standard information technologies, this is so, when fi?rms are easier to inform than consumers.