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Industry structure and collusion with uniform yardstick competition

Author

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  • Dijkstra, Peter
  • Haan, Marco A.
  • Mulder, Machiel

    (Groningen University)

Abstract

We study cartel stability in an industry that is subject to uniform yardstick regulation. In a theoretical model, we show that the number of symmetric firms does not affect collusion. In a laboratory experiment, however, we do find an effect. If anything, increasing the number of firms facilitates collusion. Our theory suggests that an increase in heterogeneity increases the regulated price if firms do not collude, but also makes collusion harder, rendering the net effect ambiguous. Our experiment suggests that the effect of collusion is stronger.

Suggested Citation

  • Dijkstra, Peter & Haan, Marco A. & Mulder, Machiel, 2014. "Industry structure and collusion with uniform yardstick competition," Research Report 14010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  • Handle: RePEc:gro:rugsom:14010-eef
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    File URL: http://hdl.handle.net/11370/0cd180f7-2f09-4f15-9788-2b856cd5ed2a
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    References listed on IDEAS

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    1. Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2004. "Strategic behaviour under regulatory benchmarking," Energy Economics, Elsevier, vol. 26(5), pages 825-843, September.
    2. 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.
    3. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    4. Jamasb, Tooraj & Pollitt, Michael, 2007. "Incentive regulation of electricity distribution networks: Lessons of experience from Britain," Energy Policy, Elsevier, vol. 35(12), pages 6163-6187, December.
    5. 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.
    6. Hans-Theo Normann & Brian Wallace, 2012. "The impact of the termination rule on cooperation in a prisoner’s dilemma experiment," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(3), pages 707-718, August.
    7. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
    8. Fumitoshi Mizutani & Hideo Kozumi & Noriaki Matsushima, 2009. "Does yardstick regulation really work? Empirical evidence from Japan’s rail industry," Journal of Regulatory Economics, Springer, vol. 36(3), pages 308-323, December.
    9. W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x, August.
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    Cited by:

    1. Dijkstra, Pieter & Haan, Marco & Mulder, Machiel, 2015. "Design of yardstick competition and consumer prices," Research Report 15004-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. TEUSCH, Jonas, 2016. "Merger Incentives Under Yardstick Competition : a Theoretical Model," CORE Discussion Papers 2016037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Xiaofeng Xu & Jun Hao & Yirui Deng, 2017. "Industry Interdependence Dynamics and Structure Change Causal Analysis: An Empirical Study on China’s Shipbuilding Industry," Sustainability, MDPI, Open Access Journal, vol. 9(4), pages 1-19, March.

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