UNET Seminar: Toomas Hinnosaar (University of Nottingham)

Title:  Collusion without patience (with Jacopo Bizzotto)

Abstract: Tacit collusion is typically associated with repeated interaction between patient firms. We show that it can also arise in a one-shot duopoly. In our model, capacity choices and outsourcing contracts with minimum order quantities create gaps in feasible outputs, allowing firms to commit not to produce intermediate quantities. This leads to three possible types of equilibria: collusive, partially competitive, and leadership equilibria. We then generalize the model to a broader setting with two-sided limited commitment and show that it yields the same set of equilibria.