FS IV 97 - 3 Localized Competition , Multimarket Operation and Collusive Behavior

Localized Competition, Multimarket Operation and Collusive Behavior by Frank Verboven This paper studies collusive behavior in a repeated oligopoly model with localized competition. Private information about the rivals' past actions naturally arises from this product market structure. The resulting communication problems imply that firms should adopt strategies with sufficiently lenient punishments. Infinite grim punishments are too severe for large discount factors. The standard stick-and-carrot punishments from the perfect public information model are too severe for all discount factors. Modified stickand-carrot punishments can be used, though for a smaller range of discount factors than the standard stick-and-carrot punishments under public information.