IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-02c90001.html
   My bibliography  Save this article

Collusion with secret price cuts: an experimental investigation

Author

Listed:
  • Robert Feinberg

    () (American University)

  • Christopher Snyder

    () (George Washington University)

Abstract

Theoretical work starting with Stigler (1964) suggests that collusion may be difficult to sustain in a repeated game with secret price cuts and demand uncertainty. Compared to equilibria in games of perfect information, trigger-strategy equilibria in this context result in lower payoffs because punishments occur along the equilibrium path. We tested the theory in a series of economic experiments. Consistent with the theory, treatments with imperfect information were less collusive than treatments with perfect information. However, in the imperfect-information treatments, players seemed to settle on the static Nash outcome rather than using trigger strategies. Players did resort to punishments for undercutting in perfect-information treatments, and this sometimes led to successful collusion afterward.

Suggested Citation

  • Robert Feinberg & Christopher Snyder, 2002. "Collusion with secret price cuts: an experimental investigation," Economics Bulletin, AccessEcon, vol. 3(6), pages 1-11.
    • Handle: RePEc:ebl:ecbull:eb-02c90001
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/EB/2002/Volume3/EB-02C90001A.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Slade, Margaret E, 1987. "Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 499-516, June.
    3. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring.
    4. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    5. Cason, Timothy N & Mason, Charles F, 1999. "Information Sharing and Tacit Collusion in Laboratory Duopoly Markets," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 258-281, April.
    6. Feinberg, Robert M & Husted, Thomas A, 1993. "An Experimental Test of Discount-Rate Effects on Collusive Behaviour in Duopoly Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 153-160, June.
    7. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 415-426, June.
    8. Margaret E. Slade, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 257-276.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Al-Ubaydli, Omar & Boettke, Peter, 2010. "Markets as economizers of information: Field experimental examination of the “Hayek Hypothesis”," MPRA Paper 27660, University Library of Munich, Germany.
    2. Fonseca, Miguel A. & Normann, Hans-Theo, 2012. "Explicit vs. tacit collusion—The impact of communication in oligopoly experiments," European Economic Review, Elsevier, vol. 56(8), pages 1759-1772.
    3. Jordan F. Suter & Kathleen Segerson & Christian A. Vossler & Gregory L. Poe, 2010. "Voluntary-Threat Approaches to Reduce Ambient Water Pollution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(4), pages 1195-1213.
    4. Stephen Martin, 2017. "Behavioral Antitrust," Purdue University Economics Working Papers 1297, Purdue University, Department of Economics.
    5. Margaret C. Levenstein & Valerie Y. Suslow, 2016. "Price Fixing Hits Home: An Empirical Study of US Price-Fixing Conspiracies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(4), pages 361-379, June.
    6. Masaki Aoyagi & Guillaume R. Frechette, 2004. "Collusion in Repeated Games with Imperfect Public Monitoring," Levine's Bibliography 122247000000000127, UCLA Department of Economics.
    7. Bradley J. Ruffle, 2013. "When Do Large Buyers Pay Less? Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 108-137, March.
    8. repec:kap:expeco:v:20:y:2017:i:2:d:10.1007_s10683-016-9494-z is not listed on IDEAS
    9. Aoyagi, Masaki & Fréchette, Guillaume, 2009. "Collusion as public monitoring becomes noisy: Experimental evidence," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1135-1165, May.
    10. John A. List, 2009. "The Economics of Open Air Markets," NBER Working Papers 15420, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-02c90001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.