Testing Game Theoretic Models of Price-Fixing Behaviour
AbstractThis paper analyzes 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, by Rotemberg and Saloner (1986), postulates 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 behavior. The main econometric novelty in the estimation procedures 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. Our 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 Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 935.
Length: 36 pages
Date of creation: Jan 1990
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- Vassilis A. Hajivassiliou, 1993. "Testing Game-Theoretic Models of Price Fixing Behaviour," Working Papers _017, Yale University.
- V A Hajivassiliou, 1997. "Testing Game-Theoretic Models of Price Fixing Behaviour," STICERD - Econometrics Paper Series /1997/324, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- 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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- David G. Pearce, 1991. "Repeated Games: Cooperation and Rationality," Cowles Foundation Discussion Papers 983, Cowles Foundation for Research in Economics, Yale University.
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