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Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies

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Author Info
Ola Andersson
Erik Wengström

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Abstract

Bertrand supergames with non-binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero-cost, low-cost and high-cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. >McCutcheon (1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support the mechanism of >McCutcheon's (1997) argument, the findings point in the direction of her prediction that antitrust laws might work in the interest of firms. Copyright The editors of the "Scandinavian Journal of Economics" 2007 .

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2007.00500.x
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Article provided by Blackwell Publishing in its journal Scandinavian Journal of Economics.

Volume (Year): 109 (2007)
Issue (Month): 2 (06)
Pages: 321-339
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Handle: RePEc:bla:scandj:v:109:y:2007:i:2:p:321-339

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  1. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November. [Downloadable!] (restricted)
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  2. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August. [Downloadable!] (restricted)
  3. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  4. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December. [Downloadable!] (restricted)
  5. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04. [Downloadable!] (restricted)
  6. Evans, Robert & Maskin, Eric, 1989. "Efficient renegotiation--proof equilibria in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 361-369, December. [Downloadable!] (restricted)
  7. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December. [Downloadable!] (restricted)
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  1. Zhongmin Wang, 2008. "Collusive Communication and Pricing Coordination in a Retail Gasoline Market," Review of Industrial Organization, Springer, vol. 32(1), pages 35-52, February. [Downloadable!] (restricted)
  2. Leufkens, Kasper & Peeters, Ronald, 2008. "Price dynamics and collusion under short-run price commitments," Research Memoranda 052, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  3. Andersson, Ola & Carlsson, Hans & Holm, Håkan, 2006. "Endogenous Communication and Tacit Coordination in Market Entry Games - An explorative experimental study," Working Papers 2006:12, Lund University, Department of Economics. [Downloadable!]
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