Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment
AbstractWe investigate the relationship between collusive behavior in Bertrand oligopoly experiments and subject heterogeneity in risk preferences. We find that risk aversion is positively associated with tacit collusion when the goods are complements, but find no evidence of collusive behavior when the goods are substitutes. Furthermore, risk aversion is associated with lower prices with complement goods, but does not impact pricing behavior with substitute goods. In both treatments, we find that subjects tend to follow the price change of the other seller. In the complements treatment, however, this tendency increases with the degree of risk aversion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, College of William and Mary in its series Working Papers with number 84.
Length: 26 pages
Date of creation: 11 Jun 2009
Date of revision:
Bertrand duopoly; risk aversion; collusion; experiment;
Other versions of this item:
- Lisa Anderson & Beth Freeborn & Jason Hulbert, 2012. "Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment," Review of Industrial Organization, Springer, vol. 40(1), pages 37-50, February.
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-COM-2009-07-03 (Industrial Competition)
- NEP-EXP-2009-07-03 (Experimental Economics)
- NEP-MIC-2009-07-03 (Microeconomics)
- NEP-UPT-2009-07-03 (Utility Models & Prospect Theory)
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.:
- Tibor Neugebauer & Javier Perote & Ulrich Schmidt & Malte Loos, 2005.
"Selfish-biased conditional cooperation: On the decline of contributions in repeated public goods experiments,"
- Neugebauer, Tibor & Perote, Javier & Schmidt, Ulrich & Loos, Malte, 2009. "Selfish-biased conditional cooperation: On the decline of contributions in repeated public goods experiments," Journal of Economic Psychology, Elsevier, vol. 30(1), pages 52-60, February.
- Tibor Neugebauer & Javier Perote & Ulrich Schmidt & Malte Loos, 2007. "Selfish-biased conditional cooperation: On the decline of contributions in repeated public goods experiments," Kiel Working Papers 1376, Kiel Institute for the World Economy.
- Jellal, Mohamed & wolff, François charles, 2005.
"Free entry under uncertainty,"
38376, University Library of Munich, Germany.
- Suetens, S. & Potters, J.J.M., 2007.
"Bertrand colludes more than Cournot,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-302953, Tilburg University.
- Christoph Engel, 2006. "How Much Collusion. A Meta-Analysis On Oligopoly Experiments," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_27, Max Planck Institute for Research on Collective Goods.
- Lisa R. Anderson & Jennifer M. Mellor, 2007.
"Predicting Health Behaviors with an Experimental Measure of Risk Preference,"
59, Department of Economics, College of William and Mary.
- Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
- Feinberg, Robert M & Husted, Thomas A, 1993. "An Experimental Test of Discount-Rate Effects on Collusive Behaviour in Duopoly Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 153-60, June.
- Asplund, Marcus, 1995.
"Risk-Averse Firms in Oligopoly,"
Working Paper Series in Economics and Finance
69, Stockholm School of Economics, revised 21 Sep 1999.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Annamaria Fiore & M. Vittoria Levati & Andrea Morone, 2006.
"Voluntary contributions with imperfect information: An experimental study,"
Papers on Strategic Interaction
2006-30, Max Planck Institute of Economics, Strategic Interaction Group.
- M. Levati & Andrea Morone & Annamaria Fiore, 2009. "Voluntary contributions with imperfect information: An experimental study," Public Choice, Springer, vol. 138(1), pages 199-216, January.
- Millner, Edward L & Pratt, Michael D, 1991. " Risk Aversion and Rent-Seeking: An Extension and Some Experimental Evidence," Public Choice, Springer, vol. 69(1), pages 81-92, February.
- Davis, Douglas, 2011.
"Behavioral convergence properties of Cournot and Bertrand markets: An experimental analysis,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 80(3), pages 443-458.
- Douglas D. Davis, 2008. "Behavioral Convergence Properties of Cournot and Bertrand Markets: An Experimental Analysis," Working Papers 0808, VCU School of Business, Department of Economics, revised Jan 2011.
- Pablo Brañas Garza & Francisca Jiménez Jiménez & Antonio Morales, 2004. "Strategic Uncertainty and Risk Attitudes:"The Experimental Connection"," Economic Working Papers at Centro de Estudios Andaluces E2004/12, Centro de Estudios Andaluces.
- Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
- Lisa R. Anderson & Beth A. Freeborn & Charles A. Holt, 2008. "Tacit Collusion in Price-Setting Duopoly Markets: Experimental Evidence," Working Papers 73, Department of Economics, College of William and Mary.
- Potters, J.J.M. & Suetens, S., 2009.
"Cooperation in experimental games of strategic complements and substitutes,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-3129878, Tilburg University.
- Jan Potters & Sigrid Suetens, 2009. "Cooperation in Experimental Games of Strategic Complements and Substitutes," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1125-1147.
- Potters, J.J.M. & Suetens, S., 2006. "Cooperation in Experimental Games of Strategic Complements and Substitutes," Discussion Paper 2006-48, Tilburg University, Center for Economic Research.
- Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-54, September.
- Banal - Estanol, Albert & Ottaviani, Marco, 2005.
"Mergers with Product Market Risk,"
CEPR Discussion Papers
4831, C.E.P.R. Discussion Papers.
- Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutström, 2005. "Temporal stability of estimates of risk aversion," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(1), pages 31-35, January.
- Lisa R. Anderson & Beth A. Freeborn & Charles A. Holt, 2010. "Tacit Collusion in Price-Setting Duopoly Markets: Experimental Evidence with Complements and Substitutes," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 577-591, January.
- Jayson L. Lusk & Keith H. Coble, 2005. "Risk Perceptions, Risk Preference, and Acceptance of Risky Food," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 393-405.
- Charness, Gary & Villeval, Marie Claire, 2007.
"Cooperation, Competition, and Risk Attitudes: An Intergenerational Field and Laboratory Experiment,"
IZA Discussion Papers
2574, Institute for the Study of Labor (IZA).
- Gary Charness & Marie-Claire Villeval, 2007. "Cooperation, Competition, and Risk Attitudes: An Intergenerational Field and Laboratory Experiment," Post-Print halshs-00175061, HAL.
- Sabater-Grande, Gerardo & Georgantzis, Nikolaos, 2002. "Accounting for risk aversion in repeated prisoners' dilemma games: an experimental test," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 37-50, May.
- Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. " On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-84, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daifeng He) or (Alfredo Pereira).
If references are entirely missing, you can add them using this form.