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Entry in Collusive Markets: An Experimental Study

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Author Info
Goppelsroeder, Marie

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Abstract

In this paper we present an experiment in which we test the effects of sequential entry on the stability of collusion in oligopoly markets. Theoretical as well as experimental research suggests that a larger number of firms in an industry makes collusion harder to sustain. In this study, we explore to what extent collusion can be upheld with exogenous entry when groups start off small and when it is common knowledge that the entrant is informed about the history of her group prior to entry. We find that collusion is indeed easier to sustain in the latter case than in groups starting large. We conjecture that an implicit coordination problem is resolved more easily in a smaller group and that coordination, once it has been established, can be transferred to the enlarged group by means of a common code of conduct. Moreover, the results suggest that entrants emulate the behavior of their group upon entry.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14707.

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Date of creation: 24 Mar 2009
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Handle: RePEc:pra:mprapa:14707

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Related research
Keywords: Collusion; Entry; Experiments;

Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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References listed on IDEAS
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  1. Offerman, Theo & Potters, Jan & Sonnemans, Joep, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 973-97, October.
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  2. Helder Vasconcelos, 2004. "Entry Effects on Cartel Stability and the Joint Executive Committee," Review of Industrial Organization, Springer, vol. 24(3), pages 219-241, 05. [Downloadable!]
  3. Gupta, Bishnupriya, 1997. "Collusion in the Indian Tea Industry in the Great Depression: An Analysis of Panel Data," Explorations in Economic History, Elsevier, vol. 34(2), pages 155-173, April. [Downloadable!] (restricted)
  4. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April. [Downloadable!] (restricted)
    Other versions:
  5. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
    Other versions:
  6. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
    Other versions:
  8. Sonnemans, Joep & Schram, Arthur & Offerman, Theo, 1999. "Strategic behavior in public good games: when partners drift apart," Economics Letters, Elsevier, vol. 62(1), pages 35-41, January. [Downloadable!] (restricted)
  9. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Blackwell Publishing, vol. 33(4), pages 415-26, June. [Downloadable!] (restricted)
  10. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January. [Downloadable!] (restricted)
  11. Steffen Huck & Kai A. Konrad & Wieland Müller & Hans-Theo Normann, 2007. "The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory," Economic Journal, Royal Economic Society, vol. 117(522), pages 1073-1095, 07. [Downloadable!] (restricted)
  12. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
  13. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December. [Downloadable!] (restricted)
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