Collusion with secret price cuts: an experimental investigation
AbstractTheoretical work starting with Stigler (1964) suggests that collusion may be difficult to sustain in a repeated game with secret price cuts and demand uncertainty. Compared to equilibria in games of perfect information, trigger-strategy equilibria in this context result in lower payoffs because punishments occur along the equilibrium path. We tested the theory in a series of economic experiments. Consistent with the theory, treatments with imperfect information were less collusive than treatments with perfect information. However, in the imperfect-information treatments, players seemed to settle on the static Nash outcome rather than using trigger strategies. Players did resort to punishments for undercutting in perfect-information treatments, and this sometimes led to successful collusion afterward.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 3 (2002)
Issue (Month): 6 ()
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Find related papers by JEL classification:
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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