OFT Roundtable on Conjectural Variations. Introduction and Coordinated Effects. Adrian Majumdar Adrian.Majumdar@rbbecon.com. Contributors. Adrian Majumdar Benoît Durand Chris Doyle Alan Crawford
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Introduction and Coordinated Effects
Gain to cheating
Impact of punishment
“... the strategies in the supergame literature typically have a firm reacting not only to other firms but to what it did itself. By contrast, a Markov strategy has a firm condition its action only on the other firms' behaviour. Thus, in a price war, a firm cuts its price not to punish its competitor (which would involve keeping track of its own past behaviour as well as that of the competitor) but simply to regain market share. It strikes us that these straightforward Markov reactions often resemble the informal concept of reaction stressed in the traditional I.O. discussion of business behaviour (e.g., the kinked demand story) more closely than do their supergame counterparts".
“Parallel accommodating conduct includes situations in which each rival’s response to competitive moves made by others is individually rational, and not motivated by retaliation or deterrence nor intended to sustain an agreed-upon market outcome, but nevertheless emboldens price increases and weakens competitive incentives to reduce prices or offer customers better terms.”