Symmetrical Punishments, Price Wars and Collusion in Durable Goods with Imperfect Public Monitoring

Abstract

It is well-known that consumers’ intertemporal incentives may play a key role on the potential of firms to sustain collusion. All previous efforts studying the topic however, assumed perfect observability of actions. I consider a stylized model of collusion in durable goods with imperfect public monitoring, and document a series of new insights. In particular, results indicate that “price wars” may be an inefficiently costly discipline mechanism even when compared to other strongly symmetrical punishments, as they induce consumers to delay purchases. This could have important implication on the election of punishment procedures by cartels, and in the characterization of optimal collusion schemes. JEL Classification Codes: L12, L13, D43.