Abstract
In the standard model of dynamic Bertrand competition, competing firms meet the same demand function every time period. This is not a satisfactory model of the demand side if consumers can make intertemporal substitution between periods, and if they have some foresight. Consumers who observe price undercutting may (correctly) anticipate a subsequent price war, and may therefore postpone purchases. This effect may drastically reduce the profits to a deviation from collusive pricing. Hence, consumers' intertemporal substitution possibilities and foresight may facilitate collusion against them. However, such a richer model of the demand side complicates the analysis, since the interaction between the firms no longer constitutes a repeated game - and hence falls outside the domain of the usual Folk theorems. We formally analyze collusive pricing in such a setting, and identify cases both when collusion is facilitated and when it is made more difficult when consumers have perfect foresight. We also consider cases of imperfect foresight.