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The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings

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  • Joseph E. Harrington, Jr

    ()
    (Dept of Business Economics & Public Policy, The Wharton School, University of Pennsylvania)

  • Roberto Hernan-Gonzalez

    ()
    (Dept of Economic Theory and History, Universidad de Granada)

  • Praveen Kujal

    ()
    (Middlesex University)

Abstract

Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communications are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-30.

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Length: 45 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:chu:wpaper:13-30

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