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Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies

  • Ola Andersson
  • Erik Wengström

Bertrand supergames with non-binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero-cost, low-cost and high-cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. >McCutcheon (1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support the mechanism of >McCutcheon's (1997) argument, the findings point in the direction of her prediction that antitrust laws might work in the interest of firms. Copyright The editors of the "Scandinavian Journal of Economics" 2007 .

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 109 (2007)
Issue (Month): 2 (06)
Pages: 321-339

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Handle: RePEc:bla:scandj:v:109:y:2007:i:2:p:321-339
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  1. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences.
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  3. Evans, Robert & Maskin, Eric, 1989. "Efficient renegotiation--proof equilibria in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 361-369, December.
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  7. Blume, A., 1991. "Intra-Play Communication in Repeated Games," Working Papers 91-29, University of Iowa, Department of Economics.
  8. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04.
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