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Conspiracies and Secret Discounts in Laboratory Markets

Author

Listed:
  • Davis, Douglas D
  • Holt, Charles A

Abstract

This paper uses laboratory methods to evaluate whether price-fixing conspiracies break down in the presence of opportunities to offer secret discounts. The primary treatment difference is whether or not buyer-specific discounts from the posted list price are permitted. In standard posted-offer markets, conspiring sellers almost uniformly find and maintain near-monopoly prices. But when the possibility of offering secret discounts is introduced, sellers find sustaining collusive agreements much more difficult and transactions prices tend to fall toward competitive levels. Secret discounts yield competitive outcomes less consistently, however, when sellers are provided ex post information about sales quantities.

Suggested Citation

  • Davis, Douglas D & Holt, Charles A, 1998. "Conspiracies and Secret Discounts in Laboratory Markets," Economic Journal, Royal Economic Society, vol. 108(448), pages 736-756, May.
    • Handle: RePEc:ecj:econjl:v:108:y:1998:i:448:p:736-56
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    Cited by:

    1. Andres, Maximilian & Bruttel, Lisa & Friedrichsen, Jana, 2023. "How communication makes the difference between a cartel and tacit collusion: A machine learning approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 152, pages 1-1.
    2. Al-Ubaydli, Omar & Boettke, Peter, 2010. "Markets as economizers of information: Field experimental examination of the “Hayek Hypothesis”," MPRA Paper 27660, University Library of Munich, Germany.
    3. Cason, Timothy N. & Sheremeta, Roman M. & Zhang, Jingjing, 2012. "Communication and efficiency in competitive coordination games," Games and Economic Behavior, Elsevier, vol. 76(1), pages 26-43.
    4. Harrington, Joseph E. & Hernan Gonzalez, Roberto & Kujal, Praveen, 2016. "The relative efficacy of price announcements and express communication for collusion: Experimental findings," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 251-264.
    5. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2008. "The impact of collusion on price behavior: Empirical results from two recent cases," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1290-1307, November.
    6. Maximilian Andres & Lisa Bruttel & Jana Friedrichsen, 2020. "Choosing between explicit cartel formation and tacit collusion – An experiment," CEPA Discussion Papers 19, Center for Economic Policy Analysis.
    7. Lisa Bruttel, 2013. "Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?," Working Paper Series of the Department of Economics, University of Konstanz 2013-21, Department of Economics, University of Konstanz.
    8. Peter T. Dijkstra & Marco A. Haan & Lambert Schoonbeek, 2021. "Leniency Programs and the Design of Antitrust: Experimental Evidence with Free-Form Communication," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(1), pages 13-36, August.
    9. List, John A. & Neilson, William S. & Price, Michael K., 2016. "The effects of group composition in a strategic environment: Evidence from a field experiment," European Economic Review, Elsevier, vol. 90(C), pages 67-85.
    10. Brian Albrecht & Omar Al-Ubaydli & Peter Boettke, 2022. "Testing the Hayek hypothesis: Recent theoretical and experimental evidence," Artefactual Field Experiments 00759, The Field Experiments Website.
    11. Fallucchi, Francesco & Renner, Elke & Sefton, Martin, 2013. "Information feedback and contest structure in rent-seeking games," European Economic Review, Elsevier, vol. 64(C), pages 223-240.
    12. Cason, Timothy N. & Friedman, Daniel & Milam, Garrett H., 2003. "Bargaining versus posted price competition in customer markets," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 223-251, February.
    13. Lisa Bruttel, 2019. "Is There a Loyalty-Enhancing Effect of Retroactive Price-Reduction Schemes?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(3), pages 575-593, May.
    14. Christine Harbring, 2006. "The effect of communication in incentive systems-an experimental study," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 333-353.
    15. Andres, Maximilian & Bruttel, Lisa & Friedrichsen, Jana, 2021. "How do sanctions work? The choice between cartel formation and tacit collusion," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242372, Verein für Socialpolitik / German Economic Association.
    16. Andreas Freitag & Catherine Roux & Christian Thöni, 2021. "Communication And Market Sharing: An Experiment On The Exchange Of Soft And Hard Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 175-198, February.
    17. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June.
    18. Nihashi, M. & Saijo, T. & Une, M., 2000. "The Outsider and Sunk Cost Effects on 'Dango' in Public Procurement Bidding: An Experimental Analysis," ISER Discussion Paper 0514, Institute of Social and Economic Research, Osaka University.
    19. Muren, Astri & Pyddoke, Roger, 2006. "Collusion without communication," Information Economics and Policy, Elsevier, vol. 18(1), pages 43-54, March.
    20. Kujal, Praveen, 1999. "Price ceilings and firm-specific quantity restrictions in posted-offer markets," Information Economics and Policy, Elsevier, vol. 11(4), pages 389-406, December.
    21. John A. List, 2009. "The Economics of Open Air Markets," NBER Working Papers 15420, National Bureau of Economic Research, Inc.
    22. Arthur Zillante, 2005. "Spaced Out Monopolies: Theory and Empirics of Alternating Product Releases," Industrial Organization 0505008, University Library of Munich, Germany.

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