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Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies

  • Klaus Abbink

    ()

  • Jordi Brandts

    ()

We study collusive behaviour in experimental duopolies that compete in prices under dynamic demand conditions. In one treatment the demand grows at a constant rate. In the other treatment the demand declines at another constant rate. The rates are chosen so that the evolution of the demand in one case is just the reverse in time than the one for the other case. We use a box-design demand function so that there are no issues of finding and co-ordinating on the collusive price. Contrary to game-theoretic reasoning, our results show that collusion is significantly larger when the demand shrinks than when it grows. We conjecture that the prospect of rapidly declining profit opportunities exerts a disciplining effect on firms that facilitates collusion and discourages deviation.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 648.05.

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Length: 20
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:aub:autbar:648.05
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  1. 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.
  2. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Learning in Cournot Oligopoly - An Experiment," Game Theory and Information 9707009, EconWPA, revised 22 Jul 1997.
  3. Holt, Charles A & Langan, Loren W & Villamil, Anne P, 1986. "Market Power in Oral Double Auctions," Economic Inquiry, Western Economic Association International, vol. 24(1), pages 107-23, January.
  4. Robert Moir, 1998. "A Monte Carlo Analysis of the Fisher Randomization Technique: Reviving Randomization for Experimental Economists," Experimental Economics, Springer, vol. 1(1), pages 87-100, June.
  5. Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
  6. Offerman, T.J.S. & Potters, J.J.M. & Sonnemans, J., 2002. "Imitation and belief learning in an oligopoly experiment," Other publications TiSEM a6a771c5-31ba-4193-8f76-a, School of Economics and Management.
  7. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
  8. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
  9. Selten, Reinhard & Apesteguia, Jose, 2005. "Experimentally observed imitation and cooperation in price competition on the circle," Games and Economic Behavior, Elsevier, vol. 51(1), pages 171-192, April.
  10. José Apesteguia & Martin Dufwenberg & Reinhard Selten, 2003. "Blowing the Whistle," Bonn Econ Discussion Papers bgse9_2003, University of Bonn, Germany.
  11. Abbink, Klaus & Abdolkarim Sadrieh, 1996. "RatDemo - A Ready-to-Run Experiment in 99 Program Lines," Discussion Paper Serie B 354, University of Bonn, Germany.
  12. Abbink, Klaus & Abdolkarim Sadrieh, 1997. "RatImage 3.30," Discussion Paper Serie B 417, University of Bonn, Germany.
  13. Reynolds, Stanley S & Isaac, R Mark, 1992. "Stochastic Innovation and Product Market Organization," Economic Theory, Springer, vol. 2(4), pages 525-45, October.
  14. repec:cup:cbooks:9780521016919 is not listed on IDEAS
  15. Dufwenberg, Martin & Gneezy, Uri & Goeree, Jacob K. & Nagel, Rosemarie, 2002. "Price Floors and Competition," Research Papers in Economics 2002:13, Stockholm University, Department of Economics.
  16. repec:ner:tilbur:urn:nbn:nl:ui:12-91663 is not listed on IDEAS
  17. Smith, Vernon L, 1982. "Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis"," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 165-79, April.
  18. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  19. Isaac, R. Mark & Reynolds, Stanley S., 1992. "Schumpeterian competition in experimental markets," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 59-100, January.
  20. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  21. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
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