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Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

  • 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)

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.

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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 84.

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Length: 26 pages
Date of creation: 11 Jun 2009
Date of revision:
Handle: RePEc:cwm:wpaper:84
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  1. Christoph Engel, 2006. "How Much Collusion. A Meta-Analysis On Oligopoly Experiments," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_27, Max Planck Institute for Research on Collective Goods.
  2. 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 153-60, June.
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  4. Douglas D. Davis, 2008. "Behavioral Convergence Properties of Cournot and Bertrand Markets: An Experimental Analysis," Working Papers 0808, VCU School of Business, Department of Economics, revised Jan 2011.
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  6. Charness, Gary & Villeval, Marie Claire, 2007. "Cooperation, Competition, and Risk Attitudes: An Intergenerational Field and Laboratory Experiment," IZA Discussion Papers 2574, Institute for the Study of Labor (IZA).
  7. Lisa R. Anderson & Jennifer M. Mellor, 2007. "Predicting Health Behaviors with an Experimental Measure of Risk Preference," Working Papers 59, Department of Economics, College of William and Mary.
  8. M. Levati & Andrea Morone & Annamaria Fiore, 2009. "Voluntary contributions with imperfect information: An experimental study," Public Choice, Springer, vol. 138(1), pages 199-216, January.
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  10. Sigrid Suetens & Jan Potters, 2007. "Bertrand colludes more than Cournot," Experimental Economics, Springer, vol. 10(1), pages 71-77, March.
  11. Jellal, Mohamed & wolff, François charles, 2005. "Free entry under uncertainty," MPRA Paper 38376, University Library of Munich, Germany.
  12. Banal-Estanol, Albert & Ottaviani, Marco, 2005. "Mergers with Product Market Risk," CEPR Discussion Papers 4831, C.E.P.R. Discussion Papers.
  13. Sabater-Grande, Gerardo & Georgantzis, Nikolaos, 2002. "Accounting for risk aversion in repeated prisoners' dilemma games: an experimental test," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 37-50, May.
  14. Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. " On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-84, March.
  15. Asplund, Marcus, 1995. "Risk-Averse Firms in Oligopoly," SSE/EFI Working Paper Series in Economics and Finance 69, Stockholm School of Economics, revised 21 Sep 1999.
  16. Jan Potters & Sigrid Suetens, 2009. "Cooperation in Experimental Games of Strategic Complements and Substitutes," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1125-1147.
  17. Pablo Brañas Garza & Francisca Jiménez Jiménez & Antonio Morales, 2004. "Strategic Uncertainty and Risk Attitudes:"The Experimental Connection"," Economic Working Papers at Centro de Estudios Andaluces E2004/12, Centro de Estudios Andaluces.
  18. Jayson L. Lusk & Keith H. Coble, 2005. "Risk Perceptions, Risk Preference, and Acceptance of Risky Food," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 393-405.
  19. Lisa R. Anderson & Beth A. Freeborn & Charles A. Holt, 2008. "Tacit Collusion in Price-Setting Duopoly Markets: Experimental Evidence," Working Papers 73, Department of Economics, College of William and Mary.
  20. 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.
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  22. Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-54, September.
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  24. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutström, 2005. "Temporal stability of estimates of risk aversion," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(1), pages 31-35, January.
  25. Lisa R. Anderson & Beth A. Freeborn & Charles A. Holt, 2010. "Tacit Collusion in Price-Setting Duopoly Markets: Experimental Evidence with Complements and Substitutes," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 577-591, January.
  26. Millner, Edward L & Pratt, Michael D, 1991. " Risk Aversion and Rent-Seeking: An Extension and Some Experimental Evidence," Public Choice, Springer, vol. 69(1), pages 81-92, February.
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