Dollars and Jens
Thursday, February 09, 2017
game theory
This might be in part because I'm teaching game theory this semester, but I look at this working paper suggesting that investment has gone down in industries that have become less competitive, and I'm struck by the idea that not only does the optimal level of capital go down if a tacit cartel forms (as production goes down), but that publicly maintaining a low level of capital could be useful in keeping a tacit cartel together; underinvesting is a commitment device, making it hard and costly to ramp up production should there be an otherwise profitable opportunity to deviate from the arrangement.

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