COLLUSION AND PREDATION UNDER THE CONDITION OF STOCHASTIC BANKRUPTCY |
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| Authors: | TOSHIKAZU KAWAKAMI |
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| Institution: | 1. Doshisha University;2. I am grateful to Yoshihiko Otani and Toshihiro Sato for their help, useful conversations, and encouragement. I would like to thank Taiji Furusawa, Kaoru Ueda, Yumiko Okamoto, and especially an anonymous referee for helpful comments on earlier drafts of this paper. Any remaining errors are mine. I appreciate the financial support from the Japan Society for the Promotion of Science. |
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| Abstract: | In this paper, on the basis of the framework of repeated games, we consider the strategic interaction between firms that may face financial constraints and go into bankruptcy when they earn low profit. We demonstrate that under asymmetric information concerning the financial constraints of the rival firm, firms adopt a pricing pattern wherein they switch to high (or collusive) prices after maintaining low prices for some periods. There are always such predatory pricing strategies sustained as equilibria when firms are sufficiently patient. We also show that the set of feasible and individual rational payoffs becomes narrower than that of the ordinal repeated games. |
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| Keywords: | C73 L10 L13 |
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