Costly communication enhances stability of collusive agreements in experimental duopoly markets.
The article explores how firms in a duopoly negotiate prices and market shares over time. It shows that firms with different levels of patience can reach a stable agreement, with the least patient firm sometimes having the highest market share. Communication plays a key role in maintaining collusive agreements, with costly communication leading to higher prices and more stable agreements. Additionally, a strategy of threatening punishment can help sustain cooperation between firms in certain situations.