ALTERNATING MONOPOLY AND TACIT COLLUSION^*

Abstract

This paper considers the use of the alternating monopoly strategy (AMS) as a (tacit) collusion device. We show that firms may choose this strategy in particular environments, when other collusive strategies are also feasible. In particular, we stress how the presence of an observable move (entry), distinct from the competitive stage (price setting), can serve as a coordination device, reducing the costs of monitoring in incomplete information environments. The paper thus shows that AMS may be preferable to classic market sharing collusion (MSE) and in some cases is the only collusive equilibrium. JEL classification: L41.

Profiteering and the degree of monopoly in the Great Recession: recent evidence from the United States and the United Kingdom

“…they find that price cutting (and falling margins) between firms may occur at the beginning of the downturn (where demand has fallen, but remains relatively high) before collusion returns; this view is consistent with our point regarding transient price cuts and restoring inventories in the incipient stage of the recession. Amelio and biancini (2010) have shown that colluding firms may find it preferable to alternate price discounts between themselves to share the market intertemporally so as to maximize firm and industry profits. It is feasible that such a strategy may also be observed throughout a recessionary period.…”

Collusion Under Imperfect Monitoring with Asymmetric Firms

“…Thus, similar to the imperfect monitoring setting first discussed by Stigler [], each firm must monitor the collusive agreement using their own privately observed sales. In this regard, our model is related to Tirole's [, p.262‐264] model of private monitoring that captures the results of Green and Porter [] in a Bertrand framework (see also Amelio and Biancini, []). Yet, unlike Tirole [], where there is a chance in each period that market demand will be zero, in our model market demand is drawn from an interval, where all possible states of demand are positive.…”

Price Dynamics of Swedish Pharmaceuticals

“…Daughety and Forsythe (1988) show that alternating monopoly prices in an oligopoly generate a first best collusion outcome without a common knowledge assumption. Further, Amelio and Biancini (2010) note that alternating monopoly price strategies may serve as a coordination device. Clark and Houde (2013) show that collusion among asymmetric retailers may result in delays of price changes to favor stronger firms.…”