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Optimal cartel equilibria with imperfect monitoring

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In this article, the authors show that there exist optimal symmetric equilibria in the Green-Porter model with an elementary intertemporal structure, described entirely by two subsets of price space and two quantities, the only production levels used by firms in any contingency.
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This article is published in Journal of Economic Theory.The article was published on 1986-06-01 and is currently open access. It has received 663 citations till now. The article focuses on the topics: Repeated game.

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Auctions and Bidding

TL;DR: Hayek as mentioned in this paper argued that the problem of rational economic order is determined by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
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The Complexity of Cooperation: Agent-Based Models of Competition and Collaboration

TL;DR: A collection of seven essays that serve as an introductory text on complexity theory and computer modelling in the social sciences, and as an overview of the current state of the art in this field can be found in this paper.
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Contract enforceability and economic institutions in early trade: The Maghribi Traders' Coalition

TL;DR: In this article, the authors present an economic institution which enabled traders to benefit from employing overseas agents despite the commitment problem inherent in these relations. And they use a simple game-theoretical model to examine the interaction between social and economic institutions, the determinants of business practices, and the nature of the merchants' law.
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Institutions and the path to the modern economy

TL;DR: In this article, the authors present a multi-disciplinary perspective to study endogenous institutions and their dynamics, including the influence of the past, the ability of institutions to change, and the difficulty to study them empirically and devise a policy aimed at altering them.
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An evolutionary approach to norms

TL;DR: In this article, the emergence and stability of behavioral norms in the context of a game played by people of limited rationality is analyzed with a computer simulation based upon the evolutionary principle that strategies shown to be relatively effective will be used more in the future than less effective strategies.
References
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Stochastic Games

TL;DR: In a stochastic game the play proceeds by steps from position to position, according to transition probabilities controlled jointly by the two players, and the expected total gain or loss is bounded by M, which depends on N 2 + N matrices.
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Noncooperative collusion under imperfect price information

Edward J. Green, +1 more
- 01 Jan 1984 - 
TL;DR: In this paper, the authors examine the nature of cartel self-enforcement in the presence of demand uncertainty and present a model of a non-cooperatively supported cartel, and the aspects of industry structure which would make such a cartel viable.
Journal ArticleDOI

A Non-cooperative Equilibrium for Supergames

TL;DR: In this paper, a non-cooperative equilibrium concept for super games is presented, which fits John Nash's noncooperative solution and also has some features resembling the Nash cooperative solution.
Frequently Asked Questions (15)
Q1. What are the contributions in "Optimal cartel equilibria with imperfect monitoring*" ?

In this paper, the authors show that there exist optimal symmetric equilibria in the Green-Porter model having an elementary intertemporal structure. 

The central technique employed is the reduction of the repeated game to a static structure from which can be extracted the optimal equilibria in question (and indeed, equilibria supporting any symmetric equilibrium payoff vector). 

The first step in defining the game is to specify the single-period component game G.The Single-Period GameN identical firms simultaneously choose quantities qi, i= l,..., N, of output to produce. 

Porter characterizes the choice of q, p, and T (the latter may be infinite) that yields cartel members the greatest discounted profit, subject to the constraint that the resulting regime must be a sequential equilibrium. 

The analysis has a strong flavor of dynamic programming, and is in the tradition of the stochastic game literature beginning with Shapley [ 121 as well as the more recent papers of Abreu [I f and Radner,yerson, and Maskin [lo]. 

A probability measure is induced on price space by equilibrium behavior (given some history); the probability measures the sets R and & give the probabilities of remaining in the reward and unishment states, respectively. 

In period t 3 2, the production level is Q( U’- ‘(w)(p’+ ‘)), which is either Q(C) = 4 or Q(a) = 4 (depending on p’-l), since u and y are the only values that U’-‘(w)($F’)= U(U’-2(w)(p’-2))(p(t- 1)) can assume. 

Note that for any 4,YESI2Since c(q) > 0 for all q E S,, the maximum single-period payoff for player i is bounded by K, and consequently the maximum supergame payoff for player E’is bounded by 6K/(l--6). 

For any q>q*=max(q,, K/(~,(l-6)))~ the maximum supergame payoff that firm i faces if it produces the quantity q, for any aggregate production y E S, for the rest of the firms, is bounded bY6” (q.j(q+y)-c(q)+6K/(l -S,} <6. (K-coy-MKl(1 -S)} CO,and since firm i can always choose to produce q = 0 (and therefore get a supergame payoff of 0), firm i will only consider production quantities in z= [0, q*] n S,. 

Then B(co( W)) = UqEsE~I:(q.en)xAq)l. S’ mce p(q) is compact for each 9 E S, E, is continuous in U, and 3 is finite, B(co( W)) is compact as required. 

if firms believe that v(p(2)) will occur if p(2) is the realization of the price in the second period, it is optimal for them to produce (r,..., r), an equilibrium of the game G(v; 6). 

More generally (if less intuitively), for any bounded set IV of real numbers, let B(W) c R represent the total payoffs that players could receive in pure strategy equilibria of truncated games in which each firstperiod price is followed by some symmetric payoff drawn from l+‘. 

The authors would like to acknowledge helpful conversations with Peter Doyle, Abraham Neyman, Rob Porter, and Hans Weinberger.251 0022-0531/S $3.00Copyright Q 1986 by Academic Press, Inc. 

One can imagine constructing a new game by truncating the discounted supergame as follows: after each first-periodlace the SSE successor by the payoffs associated with that successor. 

This fact can be used to slightly relax assumption (A3) by requiring only that the set Q defined there be contained in B, an independent of (ql ,..., qN) E 3”‘.