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Pure Numbers Effects, Market Power, and Tacit Collusion in Posted Offer Markets

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Author Info
Douglas D. Davis () (Department of Economics, VCU School of Business)

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Abstract

This paper studies the effects of seller concentration and static market power on tacit collusion in extensively repeated laboratory posted-offer markets. Contrary to the implications of some earlier research, we find that tacit collusion does not become pervasive with extensive repetition. In a ‘strong no power’ design persistently competitive outcomes are observed in markets with three or four sellers. Even duopolies are frequently competitive in this design. Unilateral market power raises prices, as predicted. However, static Nash predictions fail to organize outcomes across power treatments, because tacit collusion moves inversely with concentration. Excess capacity appears to explain observed tacit collusion levels.

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File URL: http://www.people.vcu.edu/~dddavis/working%20papers/Davis_01_09_09.pdf
File Format: application/pdf
File Function: Revised version, 2009
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Publisher Info
Paper provided by VCU School of Business, Department of Economics in its series Working Papers with number 0603.

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Length: 27 pages
Date of creation: Sep 2006
Date of revision: Jan 2009
Handle: RePEc:vcu:wpaper:0603

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Phone: 804/828-1717
Web page: http://www.bus.vcu.edu/economics/
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Related research
Keywords: experiments; market concentration; market power;

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Find related papers by JEL classification:
C9 - Mathematical and Quantitative Methods - - Design of Experiments
D4 - Microeconomics - - Market Structure and Pricing
L4 - Industrial Organization - - Antitrust Issues and Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alger, Dan, 1987. "Laboratory Tests of Equilibrium Predictions with Disequilibrium Data," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 105-45, January. [Downloadable!] (restricted)
  2. Douglas D. Davis & Bart J. Wilson, 2006. "Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation," Working Papers 0601, VCU School of Business, Department of Economics. [Downloadable!]
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  3. Douglas D. Davis & Oleg Korenok, 2005. "Posted - Offer Markets In Near Continuous Time: an Experimental Investigation," Working Papers 0504, VCU School of Business, Department of Economics, revised 2007. [Downloadable!]
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  4. Durham, Yvonne & McCabe, Kevin & Olson, Mark A. & Rassenti, Stephen & Smith, Vernon, 2004. "Oligopoly competition in fixed cost environments," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 147-162, February. [Downloadable!] (restricted)
  5. Binmore, Ken, 1999. "Why Experiment in Economics?," Economic Journal, Royal Economic Society, vol. 109(453), pages F16-24, February. [Downloadable!] (restricted)
  6. Douglas D. Davis & Charles A. Holt, 1994. "Market Power and Mergers in Laboratory Markets with Posted Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 467-487, Autumn. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Douglas D. Davis & Korenok Oleg & Robert Reilly, 2007. "Re-matching, Information and Sequencing Effects in Posted Offer Markets," Working Papers 0701, VCU School of Business, Department of Economics, revised Oct 2007. [Downloadable!]
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  2. Henrik Orzen, 2006. "Counterintuitive Number Effects in Experimental Oligopolies," Discussion Papers 2006-22, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    Other versions:
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