IDEAS home Printed from https://ideas.repec.org/p/chu/wpaper/13-30.html
   My bibliography  Save this paper

The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings

Author

Listed:
  • Joseph E. Harrington, Jr

    () (Dept of Business Economics & Public Policy, The Wharton School, University of Pennsylvania)

  • Roberto Hernan-Gonzalez

    () (Dept of Economic Theory and History, Universidad de Granada)

  • Praveen Kujal

    () (Middlesex University)

Abstract

Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communications are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms.

Suggested Citation

  • Joseph E. Harrington, Jr & Roberto Hernan-Gonzalez & Praveen Kujal, 2013. "The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings," Working Papers 13-30, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:13-30
    as

    Download full text from publisher

    File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/harrington-hernan-gonzalez-kujal-communication-practices.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-252, May.
    3. Friedman, Daniel & Huck, Steffen & Oprea, Ryan & Weidenholzer, Simon, 2015. "From imitation to collusion: Long-run learning in a low-information environment," Journal of Economic Theory, Elsevier, vol. 155(C), pages 185-205.
    4. Christoph Engel, 2011. "Dictator games: a meta study," Experimental Economics, Springer;Economic Science Association, vol. 14(4), pages 583-610, November.
    5. Isaac, R. Mark & Ramey, Valerie & Williams, Arlington W., 1984. "The effects of market organization on conspiracies in restraint of trade," Journal of Economic Behavior & Organization, Elsevier, vol. 5(2), pages 191-222, June.
    6. Christian Rojas, 2012. "The role of demand information and monitoring in tacit collusion," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 78-109, March.
    7. Marshall, Robert C. & Marx, Leslie M., 2012. "The Economics of Collusion: Cartels and Bidding Rings," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017326, January.
    8. Ola Andersson & Erik Wengström, 2007. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 321-339, June.
    9. 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.
    10. Harrington, Joseph E. & Hernan Gonzalez, Roberto & Kujal, Praveen, 2016. "The relative efficacy of price announcements and express communication for collusion: Experimental findings," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 251-264.
    11. Cason, Timothy N., 2008. "Price Signaling and "Cheap Talk" in Laboratory Posted Offer Markets," Handbook of Experimental Economics Results, Elsevier.
    12. Jose Apesteguia & Martin Dufwenberg & Reinhard Selten, 2007. "Blowing the Whistle," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(1), pages 143-166, April.
    13. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
    14. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
    15. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June.
    16. 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.
    17. repec:esx:essedp:715 is not listed on IDEAS
    18. Maria Bigoni & Sven-Olof Fridolfsson & Chloé Le Coq & Giancarlo Spagnolo, 2015. "Trust, Leniency, and Deterrence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(4), pages 663-689.
    19. Louis Kaplow, 2013. "Competition Policy and Price Fixing," Economics Books, Princeton University Press, edition 1, number 10005.
    20. David J. Cooper & Kai-Uwe K?hn, 2014. "Communication, Renegotiation, and the Scope for Collusion," American Economic Journal: Microeconomics, American Economic Association, vol. 6(2), pages 247-278, May.
    21. repec:oup:jcomle:v:3:y:2007:i:4:p:491-549. is not listed on IDEAS
    22. ., 2000. "Information costs and the division of labor," Chapters,in: Macroeconomic Instability and Coordination, chapter 14 Edward Elgar Publishing.
    23. Ronald Harstad & Stephen Martin & Hans-Theo Normann, 1997. "Experimental Tests of Consciously Parallel Behaviour in Oligopoly," CIE Discussion Papers 1997-07, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    24. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    25. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
    26. Christoph Engel, 2007. "How Much Collusion? A Meta-Analysis Of Oligopoly Experiments," Journal of Competition Law and Economics, Oxford University Press, vol. 3(4), pages 491-549.
    27. Charles F. Mason & Owen R. Phillips, 1997. "Information And Cost Asymmetry In Experimental Duopoly Markets," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 290-299, May.
    28. Harrington, Joseph E, Jr, 1991. "The Determination of Price and Output Quotas in a Heterogeneous Cartel," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 767-792, November.
    29. Isaac, R. Mark & Plott, Charles R., 1981. "The opportunity for conspiracy in restraint of trade : An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 2(1), pages 1-30, March.
    30. Andersson, Ola & Wengström, Erik, 2007. "More Communication, Less Cooperation: Experimental Evidence from Multi-stage Games," Working Papers 2007:4, Lund University, Department of Economics, revised 24 Nov 2010.
    31. Mason, Charles F & Phillips, Owen R & Nowell, Clifford, 1992. "Duopoly Behavior in Asymmetric Markets: An Experimental Evaluation," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 662-670, November.
    32. Heng, Michael S.H., 2000. "Information systems strategy and law," Serie Research Memoranda 0037, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    33. Maura P. Doyle & Christopher M. Snyder, 1999. "Information Sharing and Competition in the Motor Vehicle Industry," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1326-1364, December.
    34. Davis, Douglas D & Holt, Charles A, 1998. "Conspiracies and Secret Discounts in Laboratory Markets," Economic Journal, Royal Economic Society, vol. 108(448), pages 736-756, May.
    35. Maria Bigoni & Sven-Olof Fridolfsson & Chloé Le Coq & Giancarlo Spagnolo, 2012. "fines, leniency, and rewards in antitrust," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 368-390, June.
    36. Ola Andersson & Hakan J. Holm, 2013. "Speech Is Silver, Silence Is Golden," Games, MDPI, Open Access Journal, vol. 4(3), pages 1-11, August.
    37. MiguelA. Fonseca & Hans-Theo Normann, 2008. "Mergers, Asymmetries and Collusion: Experimental Evidence," Economic Journal, Royal Economic Society, vol. 118(527), pages 387-400, March.
    38. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616.
    39. Argenton, Cédric & Müller, Wieland, 2012. "Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 508-517.
    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. Chen, Gang & Rytter, Niels G.M. & Jiang, Liping & Nielsen, Peter & Jensen, Lars, 2017. "Pre-announcements of price increase intentions in liner shipping spot markets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 95(C), pages 109-125.
    2. Boshoff, Willem & Frübing, Stefan & Hüschelrath, Kai, 2015. "Information exchange through non-binding advance price announcements: An antitrust analysis," ZEW Discussion Papers 15-060, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Maria Bigoni & Sven-Olof Fridolfsson & Chloé Le Coq & Giancarlo Spagnolo, 2015. "Trust, Leniency, and Deterrence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(4), pages 663-689.
    4. Möllers, Claudia & Stühmeier, Torben & Wenzel, Tobias, 2016. "Search costs in concentrated markets: An experimental analysis," DICE Discussion Papers 233, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Harrington, Joseph E. & Hernan Gonzalez, Roberto & Kujal, Praveen, 2016. "The relative efficacy of price announcements and express communication for collusion: Experimental findings," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 251-264.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:chu:wpaper:13-30. 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: (Megan Luetje). General contact details of provider: http://edirc.repec.org/data/esichus.html .

    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.