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Imperfect tacit collusion and asymmetric price transmission

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  • Bulutay, Muhammed
  • Hales, David
  • Julius, Patrick
  • Tasch, Weiwei

Abstract

We investigate asymmetric price transmission (APT) in laboratory experiments and find that imperfect tacit collusion is likely the cause in our otherwise frictionless markets. We vary the number of sellers across markets to evaluate the role competition plays in APT. We report similar magnitudes of asymmetry in markets with 3, 4, 6, and 10 sellers, but not in duopolies. Furthermore, sellers consistently set their prices above the best-response levels implied by their forecasts, particularly in periods following negative shocks. We interpret these pricing deviations as sellers’ intentions to collude, and note that they mechanically drive the pricing asymmetries we observe.

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  • Bulutay, Muhammed & Hales, David & Julius, Patrick & Tasch, Weiwei, 2021. "Imperfect tacit collusion and asymmetric price transmission," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 584-599.
    • Handle: RePEc:eee:jeborg:v:192:y:2021:i:c:p:584-599
    DOI: 10.1016/j.jebo.2021.10.018
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    More about this item

    Keywords

    Asymmetric price transmission; Tacit collusion; Oligopolistic competition; Market power; Rockets and feathers;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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