Tacit Collusion under Fair Price Perceptions and Reciprocal Preferences: The Role of Expectations from Rivals

초록

This paper departs from the standard profit-maximizing model of firm behavior by assuming that managers are motivated in part by personal animosity–or respect–towards their rivals. A reciprocal manager responds to rivals’ unkind behavior with unkind actions (negative reciprocity), rivals’ kind behavior with kind actions (positive reciprocity). We find that if the managers are moderately demanding from each other, then collusive price profiles are easier to sustain when firms have reciprocal managers. However, fairness and reciprocity might impede collusion if the managers are highly demanding from each other. How these results would change when fair price perceptions endogenously is also discussed.

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