Testing Game-Theoretic Models of Price Fixing Behaviour
AbstractThis paper analyses price fixing by the Joint Executive Committee railroad cartel from 1880 to 1886 and develops tests of two game-theoretic models of tacit collusion. The first model, due to Abreu, Pearce and Stacchetti (1986), predicts that price will switch across regimes according to a Markov process. The second model, by Rotemberg and Saloner (1986), concludes that price wars are more likely in periods of high industry demand. Switching regressions are used to model the firms? shifting between collusive and punishment behaviour. The main econometric novelty introduced in this paper is that misclassification probabilities are allowed to vary endogenously over time. The JEC data set is expanded to include measures of grain production to be shipped and availability of substitute transportation services. The findings cast doubt on the applicability of the Rotemberg and Saloner model to the JEC railroad cartel, while they confirm the Markovian prediction of the Abreu et al model.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /1997/324.
Date of creation: Mar 1997
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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp
Price-fixing; Trigger-price mechanism; Switching regression models; measurement errors; simulation estimation.;
Other versions of this item:
- Vassilis A. Hajivassiliou, 1990. "Testing Game Theoretic Models of Price-Fixing Behaviour," Cowles Foundation Discussion Papers 935, Cowles Foundation for Research in Economics, Yale University.
- Vassilis A. Hajivassiliou, 1993. "Testing Game-Theoretic Models of Price Fixing Behaviour," Working Papers _017, Yale University.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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.:
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