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Entry in Collusive Markets: An Experimental Study

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  • Goppelsroeder, Marie

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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Bibliographic 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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Keywords: Collusion; Entry; Experiments;

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References

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  1. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 415-26, June.
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  5. Hinloopen,Jeroen (ed.), 2009. "Experiments and Competition Policy," Cambridge Books, Cambridge University Press, number 9780521493420, Fall.
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  7. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
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  9. Dufwenberg, Martin & Gneezy, Uri, 1998. "Price Competition and Market Concentration: An Experimental Study," Working Paper Series 1998:8, Uppsala University, Department of Economics.
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  11. 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.
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  13. Geroski, P A & Murfin, A, 1991. "Entry and Intra-industry Mobility in the UK Car Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 341-59, November.
  14. 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.
  15. Levenstein, Margaret C., 1996. "Do Price Wars Facilitate Collusion? A Study of the Bromine Cartel before World War I," Explorations in Economic History, Elsevier, vol. 33(1), pages 107-137, January.
  16. 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.
  17. 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.
  18. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
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Cited by:
  1. Kimbrough, Erik O., 2011. "Heuristic learning and the discovery of specialization and exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 491-511, April.

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