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Collusion under yardstick competition: An experimental study

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  • Potters, J.J.M.

    (Tilburg University)

  • Rockenbach, B.
  • Sadrieh, A.

    (Tilburg University)

  • Damme, E.E.C. van

    (Tilburg University)

Abstract

The effectiveness of relative performance evaluation schemes, such as yardstick competition, can be undermined by collusion.The degree to which the regulated agents manage to collude will be affected by the particulars of the scheme.We hypothesize that in a repeated game setting schemes will be more prone to collusion the smaller are the rents to the agents in case they behave non-cooperatively.We illustrate the relevance of this hypothesis by means of an economic experiment in which we compare the efficiency of two performance evaluation schemes.

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-141666.

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Date of creation: 2004
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Publication status: Published in International Journal of Industrial Organization (2004) v.22, p.1017-1038
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-141666

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Web page: http://www.tilburguniversity.edu/

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References

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  1. Gibbons, R. & Murphy, K.J., 1989. "Relative Performance Evaluation For Chief Executive Officers," Working papers 532, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages C80-95, March.
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  4. Tangeras, T.P., 1999. "Collusion-Proof Yardstick Competition," Papers 674, Stockholm - International Economic Studies.
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  11. Joel Sobel, 1999. "A Reexamination of Yardstick Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 33-60, 03.
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Cited by:
  1. Georg Meran & Christian von Hirschhausen, 2006. "A Modified Yardstick Competition Mechanism," Discussion Papers of DIW Berlin 559, DIW Berlin, German Institute for Economic Research.
  2. Daniel Cracau & Benjamin Franz, 2012. "An experimental study of mixed strategy equilibria in simultaneous price-quantity games," FEMM Working Papers 120017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  3. Mulder, Machiel & Haan, Marco A. & Dijkstra, Peter T., 2014. "Industry structure and collusion with uniform yardstick competition: theory and experiments," Research Report 14010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  4. Angelino Viceisza, 2007. "An experimental inquiry into the effect of yardstick competition on corruption," Experimental Economics Center Working Paper Series 2007-09, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  5. SUETENS, Sigrid & POTTERS, Jan, 2005. "Bertrand colludes more than Cournot," Working Papers 2005037, University of Antwerp, Faculty of Applied Economics.
  6. Frisell, Lars & Roszbach, Kasper & spagnolo, giancarlo, 2008. "Governing the Governors: A Clinical Study of Central Banks," Working Paper Series 221, Sveriges Riksbank (Central Bank of Sweden).
  7. Ayako Suzuki, 2008. "Yardstick Competition to Elicit Private Information: An Empirical Analysis of the Japanese Gas Distribution Industry," ISER Discussion Paper 0709, Institute of Social and Economic Research, Osaka University.
  8. Ayako Suzuki, 2012. "Yardstick Competition to Elicit Private Information: An Empirical Analysis," Review of Industrial Organization, Springer, vol. 40(4), pages 313-338, June.
  9. Haan, Marco A. & Dijkstra, Peter T. & Mulder, Machiel, 2013. "The effects of industry structure and yardstick design on strategic behavior with yardstick competition: an experimental study," Research Report 13008-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  10. Longo, R & Miraldo, M & Street, A, 2009. "Price regulation of pluralistic markets subject to provider collusion," Working Papers 1454, Imperial College, London, Imperial College Business School.
  11. Daniel Cracau & Abdolkarim Sadrieh, 2014. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels," FEMM Working Papers 140003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  12. Daniel Cracau & Benjamin Franz, 2014. "An experimental test of the mixed strategy equilibrium in price-quantity oligopolies," Economics Bulletin, AccessEcon, vol. 34(3), pages 1369-1380.
  13. Fumitoshi Mizutani & Hideo Kozumi & Noriaki Matsushima, 2009. "Does yardstick regulation really work? Empirical evidence from Japan’s rail industry," Journal of Regulatory Economics, Springer, vol. 36(3), pages 308-323, December.

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