Coordimatiom issues Sample Clauses

Coordimatiom issues. The role of commumicatiom When firms repeatedly meet in the marketplace, if the discount factor is large enough, any price between marginal cost and fully collusive price might be sustained. This raises the issue of which price is likely to arise as the market outcome. Habit, history, or particular events might provide firms with a fogat posnt on which to coordinate. Consider for instance a situation where two firms are told by a regulator that their prices cannot be higher than a certain level, say 100. In this case, this price will provide a clear benchmark (the focal point) for the firms, and one can bet that 100 will be the price that they will set.69 History might also provide hints. Many European markets have been pro- tected from foreign competition for a long time, resulting in several national monopolies in many industries. Once tariff and non-tariff barriers started 68 Some exceptions about detailed data might occur in particular sectors. In banking and insurance, for instance, markets are characterised by asymmetric information. If firms had information about clients‘ solvency history, this would be e@ciency enhancing as it would lessen adverse selection problems and xxxxxx competition by helping customers to switch firms. See Xxxxxxx and Xxxxxx (1999). Note, however, that although disaggregate, this is not information about prices set or quantities produced by firms.
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