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Possible Collusion and Equilibrium Prices

Author

Listed:
  • Heggedal, Tom-Reiel
  • Knutsen, Magus VÃ¥ge
  • Moen, Espen Rasmus

Abstract

We investigate how possible collusion, interpreted as a positive prior probability that collusion may occur, influences equilibrium prices in states of the world in which collusion, in fact, does not occur. We explore the mechanism in a theoretical model of consumer search, based on the Stahl (1989) framework, and show that with possible collusion, equilibrium prices are higher even in the absence of collusion. We test the model predictions in a series of laboratory experiments. The results are qualitatively consistent with our theoretical predictions.

Suggested Citation

  • Heggedal, Tom-Reiel & Knutsen, Magus VÃ¥ge & Moen, Espen Rasmus, 2024. "Possible Collusion and Equilibrium Prices," CEPR Discussion Papers 19817, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19817
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    File URL: https://cepr.org/publications/DP19817
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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