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Explicit vs. tacit collusion—The impact of communication in oligopoly experiments

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  • Fonseca, Miguel A.
  • Normann, Hans-Theo

Abstract

We explore the difference between explicit and tacit collusion by investigating the impact communication has in experimental markets. For Bertrand oligopolies with various numbers of firms, we compare pricing behavior with and without the possibility to communicate among firms. We find strong evidence that talking helps to obtain higher profits for any number of firms, however, the gain from communicating is non-monotonic in the number of firms, with medium-sized industries having the largest additional profit from talking. We also find that industries continue to collude successfully after communication is disabled. Communication supports firms in coordinating on collusive pricing schemes, and it is also used for conflict mediation.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 8 ()
Pages: 1759-1772

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1759-1772

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Cartels; Collusion; Communication; Experiments; Repeated games;

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References

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Citations

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Cited by:
  1. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2012. "Do buyer groups facilitate collusion?," DICE Discussion Papers 74, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Catherine Roux & Christian Thöni, 2013. "Collusion Among Many Firms: The Disciplinary Power of Targeted Punishment," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 13.02, Université de Lausanne, Faculté des HEC, DEEP.
  3. Joseph E. Harrington, Jr., 2012. "A Theory of Tacit Collusion," Economics Working Paper Archive 588, The Johns Hopkins University,Department of Economics.
  4. Embrey Matthew & Mengel Friederike & Peeters Ronald, 2012. "Strategic commitment and cooperation in experimental games of strategic complements and substitutes," Research Memoranda 052, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.

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