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Collusion with secret price cuts: an experimental investigation

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Author Info
Robert Feinberg () (American University)
Christopher Snyder () (George Washington University)

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Abstract

Theoretical 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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File URL: http://www.economicsbulletin.com/2002/volume3/EB-02C90001A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 3 (2002)
Issue (Month): ()
Pages: 1-11
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:eb-02c90001

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Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
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Related research
Keywords: economic experiments; trigger strategies; uncertainty; information; secret price cuts; Nash solution; repeated games; collusion; duopoly; oligopoly; punishment;

Find related papers by JEL classification:
C9 - Mathematical and Quantitative Methods - - Design of Experiments
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Slade, Margaret E, 1987. "Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 499-516, June. [Downloadable!] (restricted)
  2. Cason, Timothy N & Mason, Charles F, 1999. "Information Sharing and Tacit Collusion in Laboratory Duopoly Markets," Economic Inquiry, Oxford University Press, vol. 37(2), pages 258-81, April.
  3. Feinberg, Robert M & Husted, Thomas A, 1993. "An Experimental Test of Discount-Rate Effects on Collusive Behaviour in Duopoly Markets," Journal of Industrial Economics, Blackwell Publishing, vol. 41(2), pages 153-60, June. [Downloadable!] (restricted)
  4. Slade, Margaret E, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," Review of Economic Studies, Blackwell Publishing, vol. 59(2), pages 257-76, April. [Downloadable!] (restricted)
  5. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring. [Downloadable!] (restricted)
  6. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
    Other versions:
  7. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Blackwell Publishing, vol. 33(4), pages 415-26, June. [Downloadable!] (restricted)
  8. Holcomb, James H. & Nelson, Paul S., 1997. "The role of monitoring in duopoly market outcomes," The Journal of Socio-Economics, Elsevier, vol. 26(1), pages 79-93. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ruffle, Bradley J., 2009. "When Do Large Buyers Pay Less? Experimental Evidence," MPRA Paper 16683, University Library of Munich, Germany. [Downloadable!]
  2. Masaki Aoyagi & Guillaume R. Frechette, 2004. "Collusion in Repeated Games with Imperfect Public Monitoring," Levine's Bibliography 122247000000000127, UCLA Department of Economics. [Downloadable!]
  3. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December. [Downloadable!] (restricted)
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This page was last updated on 2009-11-16.


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