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Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

Author

Listed:
  • Lisa R. Anderson

    () (Department of Economics, College of William and Mary)

  • Beth A. Freeborn

    () (Department of Economics, College of William and Mary)

  • Jason P. Hulbert

    () (Department of Economics, College of William and Mary)

Abstract

We investigate the relationship between collusive behavior in Bertrand oligopoly experiments and subject heterogeneity in risk preferences. We find that risk aversion is positively associated with tacit collusion when the goods are complements, but find no evidence of collusive behavior when the goods are substitutes. Furthermore, risk aversion is associated with lower prices with complement goods, but does not impact pricing behavior with substitute goods. In both treatments, we find that subjects tend to follow the price change of the other seller. In the complements treatment, however, this tendency increases with the degree of risk aversion.

Suggested Citation

  • Lisa R. Anderson & Beth A. Freeborn & Jason P. Hulbert, 2009. "Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment," Working Papers 84, Department of Economics, College of William and Mary.
  • Handle: RePEc:cwm:wpaper:84
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    File URL: http://economics.wm.edu/wp/cwm_wp84.pdf
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    References listed on IDEAS

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    Cited by:

    1. Richards, Timothy & Liaukonyte, Jura & Nadia, Streletskya, 2016. "Personalized Pricing and Price Fairness," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235809, Agricultural and Applied Economics Association.
    2. Richards, Timothy J. & Liaukonyte, Jura & Streletskaya, Nadia A., 2016. "Personalized pricing and price fairness," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 138-153.
    3. Yonezawa, Koichi & Richards, Timothy J., 2016. "Risk Aversion and Preference for Store Price Format," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Number 3), pages 1-23.

    More about this item

    Keywords

    Bertrand duopoly; risk aversion; collusion; experiment;

    JEL classification:

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

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