Collusion in dynamic Bertrand oligopoly with correlated private signals and communication (Q1604524)

A collusion in the repeated Bertrand oligopoly when firms observe stochastic demands for their own product only is considered earlier in a seminal paper by \textit{G. Stigler} [A theory of oligopoly. J. Political Econ. 72, 44-61 (1964)]. Collusion is hard to sustain in such an environment as no coordination device exists for punishing ``secret price-cutting''. The paper studies collusion in the repeated Bertrand oligopoly when stochastic demand levels for the product of each firm are their private information and are positively correlated. This paper extends the analysis of communication in repeated games with private monitoring when the firms' private signals are correlated conditional on each price profile. Correlation of private signals is a distinguishing feature of this paper and gives rise to a very simple grimm-trigger collusion scheme based on a logic entirely different from that used by the other authors. The above-mentioned analysis is then applied to a model where the demand signal has multiple random components with respond differently to price deviations. It is shown that the above sufficient conditions in the model hold if idiosyncratic noise terms are sufficiently small.