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The Lingering Effect of Capacity Coordination on Firm Behavior in Post-depression Periods: Evidence from a Laboratory Experiment

Author

Listed:
  • Keisaku Higashida

    (School of Economics, Kwansei Gakuin University)

  • Kenta Tanaka

    (Faculty of Economics, Musashi University)

Abstract

This study experimentally examines whether capacity coordination in depression, which is sometimes allowed under antitrust laws, influences the firm behavior in periods after demand recovers. Following Hampton and Sherstyuk (2012), we conducted a series of laboratory experiment by adopting the two-stage capacity-price decision-making duopoly setting. We adopted three treatments in terms of capacity coordination: no coordination, weak coordination, and strong coordination. Under the strong coordination treatment, the subjects cannot deviate from the coordinated capacity, which they can do so under the weak coordination treatment. The results of the experiment indicate that the experiences of success and failure of coordination influence subjects’ capacity choices during periods after demand recovers even if capacity coordination is not allowed in those post-depression periods. In particular, capacity may be greater in the post-depression periods than in the pre-depression periods under the weak coordination.

Suggested Citation

  • Keisaku Higashida & Kenta Tanaka, 2017. "The Lingering Effect of Capacity Coordination on Firm Behavior in Post-depression Periods: Evidence from a Laboratory Experiment," Discussion Paper Series 160, School of Economics, Kwansei Gakuin University, revised May 2017.
  • Handle: RePEc:kgu:wpaper:160
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    More about this item

    Keywords

    Capacity coordination; demand shocks; lingering effect; laboratory experiment;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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