Cournot duopoly and tacit collusion under fairness and reciprocal preferences

This paper studies the impact of fairness and reciprocity on collusion between firms competing in quantities in infinitely repeated games. A reciprocal firm responds to unkind behavior of rivals with unkind actions (destructive reciprocity), while at the same time, it responds to kind behavior of rivals with kind actions (constructive reciprocity). The paper shows that when firms are reciprocal, collusive quantity profiles are easier to sustain for reasonable perceptions of fair quantities of rivals. However, if only very low quantities deemed as fair, then sustaining collusion could be more difficult when the firms have fairness concerns.