COORDINATION IN OLIGOPOLY

The private and social efficiency of two ''behavioral'' coordination m echanisms is examined in this paper. In Cournot oligopoly, firms prefe r immediate coordination on the Nash equilibrium (interpreted as a pre play communication) over the best-reply dynamics (and fictitous play) which converge to the equilibrium, but with delay (interpreted as a de centralized learning process). In Bertrand oligopoly, firms prefer the learning process. These results indicate that firms have incentives t o create institutions, such as trade associations or informal meetings , to facilitate coordination of production capacities, but not prices. Moreover, quantity agreements may even increase social welfare.