Multimarket contact, imperfect monitoring, and implicit collusion (Q5938637): Difference between revisions

The paper presents a mathematical market model where two rival firms supply some finite product to a few (duopolistic) market. Each firm simultaneously chooses for each market a ``small'' or ``large'' supply and resulting price in each market is ``high'' or ``low'' and is randomly determined according to the strategies probability distribution. This events are repeated infinitely as a two-person game of ``prisoner-dilemma'' kind with pay-off discounting. Neither firm can directly observe its opponent's choice, but can imperfectly monitor it through realization of the noisy market price. Theoretical results are presented in one proposition (for the perfect monitoring case) and in the main theorem (for the imperfect monitoring). The proof of the theorem is constructive. Here a strategy profile (time sequence of probability distribution) constructed. It can be regarded as a generalization of the ``trigger strategy'' profile of \textit{J. W. Friedman} [Rev. Econ. Stud. 38, 1-12 (1971; Zbl 0274.90072)] and is also related to the idea of the ``review strategy'' profile of \textit{R. Radner} [Rev. Econ. Stud. 53, 43-57 (1986; Zbl 0579.90105)]. A comprehensive game theory and economic interpretation of the obtained formal results is presented.