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Collusion through Price Ceilings? In Search of a Focal-Point Effect

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Author Info

  • Engelmann, D.
  • Müller, W.

    (Tilburg University, Tilburg Law and Economics Center)

Abstract

With this study we resume the search for a collusive focal-point effect of price ceilings in laboratory markets. We argue that market conditions in previous studies were unfavorable for collusion which may have been responsible for not finding such a focal-point effect. Our design aims at maximizing the likelihood of a focal-point effect. Nevertheless, our results again fail to support the focal-point hypothesis. Collusion is as unlikely in markets with a price ceiling as in markets with unconstrained pricing. Overall, the static Nash equilibrium predicts the data fairly accurately. We argue that this might warrant re-interpretation of field studies on anti-competitive effects of price ceilings.

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Bibliographic Info

Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2008-036.

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Date of creation: 2008
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Handle: RePEc:dgr:kubtil:2008036

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Web page: http://www.tilburguniversity.nl/tilec/

Related research

Keywords: Collusion; competition policy; experimental economics; focal point;

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  1. Isaac, R Mark & Plott, Charles R, 1981. "Price Controls and the Behavior of Auction Markets: An Experimental Examination," American Economic Review, American Economic Association, vol. 71(3), pages 448-59, June.
  2. Eriksson, Rickard, 2004. "Testing for Price Leadership and for Reputation Goods Effects: Swedish Dental Services," Working Paper Series 5/2004, Swedish Institute for Social Research.
  3. Borck, R. & Engelmann, D. & Müller, W. & Normann, H.T., 2002. "Tax liability side equivalence in an experimental posted offer market," Open Access publications from Tilburg University urn:nbn:nl:ui:12-112548, Tilburg University.
  4. Jin Li & Charles R. Plott, 2009. "Tacit Collusion In Auctions And Conditions For Its Facilitation And Prevention: Equilibrium Selection In Laboratory Experimental Markets," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 425-448, 07.
  5. Borck, Rainald & Engelmann, Dirk & Müller, Wieland & Normann, Hans-Theo, 2000. "Tax liability side equivalence in experimental posted-offer markets," SFB 373 Discussion Papers 2000,8, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  6. Isaac, R Mark & Smith, Vernon L, 1985. "In Search of Predatory Pricing," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 320-45, April.
  7. Gomez, Rosario & Goeree, Jacob K., 2008. "Predatory Pricing: Rare Like a Unicorn?," Handbook of Experimental Economics Results, Elsevier.
  8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
  9. Christopher R. Knittel & Victor Stango, 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards," American Economic Review, American Economic Association, vol. 93(5), pages 1703-1729, December.
  10. Normann, Hans-Theo & Wallace, Brian, 2011. "The impact of the termination rule on cooperation in a prisoner's dilemma experiment," DICE Discussion Papers 19, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  12. Harrison, Glenn W., 1988. "Predatory pricing in a multiple market experiment : A note," Journal of Economic Behavior & Organization, Elsevier, vol. 9(4), pages 405-417, June.
  13. Coursey, Don L & Smith, Vernon L, 1983. "Price Controls in a Posted Offer Market," American Economic Review, American Economic Association, vol. 73(1), pages 218-21, March.
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