Tacit Collusion Under Imperfect Monitoring in the Canadian Manufacturing Industry: An Empirical Study

Abstract

The paper undertakes a cross-sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by Abreu et al (1986). Specifically, the prevalence of a first order Markovian process for alternating between price wars and collusive periods is assessed by means of non-parametric tests. The analysis focuses on 30 different industries in Canada. The evidence provides weak support for optimal collusion in one industry, which is consistent with the idea that such collusive arrangements are unusual.

Keywords: tacit collusion, game theory, Canada, price war

JEL Classification: L130, L220, L610