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Pure numbers effects, market power, and tacit collusion in posted offer markets

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  • Davis, Douglas

Abstract

This paper studies the effects of seller concentration and static market power on tacit collusion in extensively repeated laboratory posted-offer markets. Contrary to the implications of some earlier research, we find that tacit collusion does not become pervasive with extensive repetition. In a 'strong no-power' design persistently competitive outcomes are observed in markets with three or four sellers. Even duopolies are frequently competitive in this design. Unilateral market power raises prices, as predicted. However, static Nash predictions fail to organize outcomes across power treatments, because tacit collusion moves inversely with concentration. Excess capacity appears to explain observed tacit collusion levels.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 72 (2009)
Issue (Month): 1 (October)
Pages: 475-488

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Handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:475-488

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Keywords: Experiments Market concentration Market power;

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References

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  1. Smith, Vernon L., 2002. "Constructivist and Ecological Rationality in Economics," Nobel Prize in Economics documents, Nobel Prize Committee 2002-7, Nobel Prize Committee.
  2. Dufwenberg, M. & Gneezy, U., 1998. "Price Competition and Market COncentration: An Experimental Study," Papers, Uppsala - Working Paper Series 1998-08, Uppsala - Working Paper Series.
  3. Douglas D. Davis & Oleg Korenok, 2009. "Posted Offer Markets In Near-Continuous Time: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 449-466, 07.
  4. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 923-55, December.
  5. Douglas D. Davis & Bart J. Wilson, 2006. "Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation," Working Papers 0601, VCU School of Business, Department of Economics.
  6. Deck, Cary A. & Wilson, Bart J., 2008. "Experimental gasoline markets," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 67(1), pages 134-149, July.
  7. Durham, Yvonne & McCabe, Kevin & Olson, Mark A. & Rassenti, Stephen & Smith, Vernon, 2004. "Oligopoly competition in fixed cost environments," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(2), pages 147-162, February.
  8. Henrik Orzen, 2008. "Counterintuitive number effects in experimental oligopolies," Experimental Economics, Springer, Springer, vol. 11(4), pages 390-401, December.
  9. Douglas D. Davis & Charles A. Holt, 1994. "Market Power and Mergers in Laboratory Markets with Posted Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 467-487, Autumn.
  10. Douglas D. Davis & Korenok Oleg & Robert Reilly, 2007. "Re-matching, Information and Sequencing Effects in Posted Offer Markets," Working Papers 0701, VCU School of Business, Department of Economics, revised Oct 2007.
  11. Plott, Charles R., 1989. "An updated review of industrial organization: Applications of experimental methods," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 19, pages 1109-1176 Elsevier.
  12. Cason, Timothy N. & Williams, Arlington W., 1990. "Competitive equilibrium convergence in a posted-offer market with extreme earnings inequities," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 14(3), pages 331-352, December.
  13. Alger, Dan, 1987. "Laboratory Tests of Equilibrium Predictions with Disequilibrium Data," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 105-45, January.
  14. Binmore, Ken, 1999. "Why Experiment in Economics?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(453), pages F16-24, February.
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Cited by:
  1. Davis, Douglas, 2011. "Behavioral convergence properties of Cournot and Bertrand markets: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 80(3), pages 443-458.
  2. Douglas Davis & Oleg Korenok & Robert Reilly, 2009. "Re-matching, information and sequencing effects in posted offer markets," Experimental Economics, Springer, Springer, vol. 12(1), pages 65-86, March.
  3. Andrei Y. Shastitko & Svetlana V. Golovanova, 2014. "Collusion in markets characterized by one large buyer: lessons learned from an antitrust case in Russia," HSE Working papers, National Research University Higher School of Economics WP BRP 49/EC/2014, National Research University Higher School of Economics.

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