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Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

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  • Lisa R. Anderson

    ()
    (Department of Economics, College of William and Mary)

  • Beth A. Freeborn

    ()
    (Department of Economics, College of William and Mary)

  • Jason P. Hulbert

    ()
    (Department of Economics, College of William and Mary)

Abstract

We 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.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 84.

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Length: 26 pages
Date of creation: 11 Jun 2009
Date of revision:
Handle: RePEc:cwm:wpaper:84

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Keywords: Bertrand duopoly; risk aversion; collusion; experiment;

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