Demand forecasting, signal precision, and collusion with hidden actions
- Author(s)
- Simon Martin, Alexander Rasch
- Abstract
We analyze how higher demand-forecasting precision affects firms' chances of sustaining supracompetitive profits, depending on whether actions are observable or hidden. We identify a dual role of improving forecasting ability for situations in which actions are hidden. Improved forecasting ability increases the temptation for firms to deviate, reducing profits; at the same time, such ability reduces and eventually eliminates the uncertainty over whether deviations are occurring. Our framework, in which firms decide on prices and promotional activities, reveals a U-shaped relationship between profits and predictive ability. Generally, collusive profits may increase or decrease in signal precision, depending on action observability, highlighting the importance of industry-specific considerations for regulatory interventions and competition policy.
- Organisation(s)
- External organisation(s)
- Heinrich-Heine-Universität Düsseldorf
- Journal
- International Journal of Industrial Organization
- Volume
- 92
- Pages
- 103036
- ISSN
- 0167-7187
- DOI
- https://doi.org/10.1016/j.ijindorg.2023.103036
- Publication date
- 01-2024
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502013 Industrial economics
- Keywords
- ASJC Scopus subject areas
- Aerospace Engineering, Industrial relations, Industrial and Manufacturing Engineering, Strategy and Management
- Portal url
- https://ucrisportal.univie.ac.at/en/publications/02bfb64a-7ada-4e28-afbb-ec54a7046a46