Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies
AbstractUsing Bertrand supergames with communication, we study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero-cost, low-cost and high-cost. We find that increasing the cost of communication results in a significantly higher price level. Moreover, making communication costly decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. By letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices, McCutcheon (1997) presents an interesting application to antitrust policy. The experimental results support her theoretical prediction that antitrust laws might work in the interest of firms.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2004:14.
Length: 41 pages
Date of creation: 13 Apr 2004
Date of revision: 13 Sep 2004
Publication status: Published in The Scandinavian Journal of Economics, 2007, pages 321-339.
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Antitrust Policy; Experiments; Collusion; Costly Communication; Weakly Renegotiation-proof Equilibria;
Other versions of this item:
- Ola Andersson & Erik Wengström, 2007. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 321-339, 06.
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-04-18 (All new papers)
- NEP-COM-2004-04-18 (Industrial Competition)
- NEP-EXP-2004-04-18 (Experimental Economics)
- NEP-IND-2004-05-09 (Industrial Organization)
- NEP-LAW-2004-04-18 (Law & Economics)
- NEP-MIC-2004-04-18 (Microeconomics)
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