Abstract: Explicit collusion aims at putting the members of an agreement at the point on the profit frontier at which joint profit is maximised. Tacit collusion aims at increasing the profits of the colluders above the level implied in the non-cooperative Cournot–Nash equilibrium until hopefully the same joint profit-maximising point is reached. The objectives are thus basically the same. But with tacit collusion the task is complicated by the fact that no explicit agreement in the form of a legally enforceable contract is possible, typically because such contracts are illegal. This chapter will show that, from an economic point of view, explicit collusion and tacit collusion are not fundamentally different. Section 4.1 made it clear that contracts, however enforceable legally, will not be carried out if there is no mechanism that deters cheating and that it is this mechanism that makes the agreement binding. If the mechanism is a set of strategies (such as Osborne's rule) which together constitute a non-cooperative Nash equilibrium, then the results of section 4.1 suggest that the outcome associated with collusion can be obtained in a non-collusive way. That is exactly the message of the present chapter, with the important proviso that the dynamics of the problem should be carefully spelt out. In particular, oligopolists should be seen as meeting over and over again in the marketplace, so that the time sequence of the deterring mechanism can be made clear to all.
Publication Year: 1995
Publication Date: 1995-10-19
Language: en
Type: book-chapter
Indexed In: ['crossref']
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