Delbono, Flavio ; Lambertini, Luca
(2016)
On Globally Optimal Punishments in the Repeated Cournot Game.
Bologna:
Dipartimento di Scienze economiche DSE,
p. 19.
DOI 10.6092/unibo/amsacta/5483.
In: Quaderni - Working Paper DSE
(1091).
ISSN 2282-6483.
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Abstract
We challenge the global optimality of one-shot punishments in infinitely repeated games with discounting. Specifically, we show that the stick-and-carrot punishment à la Abreu (1986) may not be globally optimal. We prove our result by investigating tacit collusion in the infinite repetition of a linear Cournot game. We illustrate the existence of the stick-and-carrot globally optimal punishment for large cartels, and fully characterise it. Then, we show that for mall cartels, global optimality may be reached only with two-period punishments.
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