Characterisation of equilibrium in oligopoly with applications to trade and taxation

Abstract

This thesis is organized into four independent chapters. Chapter 1 is divided into two parts: part one is concerned with the characterization of optimal penal codes in presence of a n period detection lag, where n can be thought of as minutes, hours, days, weeks, etc., depending on the particular situation at stake. The idea is that, in many cases, it is not possible for a given player to directly observe the behaviors of her/his rivals, the consequence being that cheating on an implicit agreement can be kept secret for a certain time period. This may be due to information delays and/or infrequent interaction. We extend the standard Abreu (1986) result to a setting with delays in reacting to any deviation. We show that information delays reduce cartel stability. As an illustration, we provide two examples dealing with either price or quantity competition. In the second part of the chapter, we explore the possibility that optimal penal codes may fail to be optimal. We modify one of the Abreu (1986)‘s assumptions by introducing economies of scale and compare the critical discount factor implied by Abreu‘s penal rules with the one generated by infinite Nash reversion. We show that, when economies of scale are sufficiently strong, grim trigger strategies are more efficient in stabilizing collusion than optimal penal codes.