Abstract
This paper studies a simple model of a repeated cartel that can punish using both voluntary fines and inefficient prices wars. The idea is to use the fines in response to noisy signals of bad behavior and back it up with threats of price wars in response to the easily observed failure to pay the voluntary fines. The model is shown to deliver the insights of modern repeated game theory in an empirically accurate and tractable form.
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I would like to thank Giacomo Calzolari, Rohan Dutta, Drew Fudenberg, Andrea Mattozzi, and Salvatore Modica. I am grateful to MIUR (PRIN 2017H5KPLL) for financial support.
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Levine, D.K. Fine cartels. Econ Theory Bull 9, 155–166 (2021). https://doi.org/10.1007/s40505-021-00205-z
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DOI: https://doi.org/10.1007/s40505-021-00205-z