Volume 51, Issue 1 p. 158-188
Original Article

Collusion with intertemporal price dispersion

First published: 12 March 2020
Citations: 10

We are grateful to Murali Agastya, Jim Albrecht, Mark Armstrong, Michelle Bergemann, Sergey Izmalkov, Eric Maskin, Mark Melatos, Ariel Pakes, David Pearce, Debraj Rey, John Romalis, Abhijit Sengupta, Kunal Sengupta, Andy Skrzypacz, Juuso Välimäki, Jeroen van de Ven, Andrew Wait, and anonymous referees for useful comments, suggestions, and encouragement. We thank attentive seminar audiences at the University of Bielefeld (2013), the Australian National University (2013), the University of New South Wales (2013), the University of Sydney (2013), the University of Queensland (2013), Georgetown University (2014), the Stern School of Business at NYU (2014), Harvard University (2014), Boston College (2014), New York University (2014), the Free University of Amsterdam (2014), the University of Amsterdam (2014), the University of Mannheim (2014), the University of Groningen (2014), the New Economic School (2016), and Monash University (2017).

Abstract

We develop a theory of optimal collusive intertemporal price dispersion. Dispersion clouds consumer price awareness, encouraging firms to coordinate on dispersed prices. Our theory generates a collusive rationale for price cycles and sales. Patient firms can support optimal collusion at the monopoly price. For less patient firms, monopoly prices must be punctuated with fleeting sales. The most robust structure involves price cycles that resemble Edgeworth cycles. Low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions. However, for sufficiently low attentiveness, price rises are also a concern.

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