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Article: Tacit collusion under interest rate fluctuations.(Column)
- Article from:
- RAND Journal of Economics
- Article date:
- June 22, 2007
- Author:
CopyrightCOPYRIGHT 2007 Rand, Journal of Economics. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Previous literature has shown that demand fluctuations affect the scope for tacit collusion. I study whether discount factor fluctuations can have similar effects. I find that collusion depends not only on the level of the discount factor but also, and more surprisingly, on its volatility. Collusive prices and profits increase with a higher discount factor level, but decrease with its volatility. These results have important implications for empirical studies of collusive pricing, the role that collusive pricing may play in economic cycles and the study of cooperation in repeated games.
1. Introduction
* It is well known that oligopolies can use the ...