Flexibility and Collusion with Imperfect Monitoring

Category: Applied Microeconomics and Organization Seminar
When: 08 June 2016
, 17:15
 - 18:30
Where: RuW, 4.201


Flexibility -- the possibility to react swiftly to others' choices -- facilitates collusion by reducing the gains from defection. With imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. In theory, the interplay of these forces generates an inverse U-shaped effect of flexibility on collusion. To test this subtle prediction, we implement a repeated Cournot game under imperfect monitoring in the lab and change the delay with which subjects can react to information. The results display support for a non-monotonic effect of flexibility, but only if subjects can communicate with each other. Moreover, the effect of flexibility on collusion is small relative to the effect of communication per se.