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Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies

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  • KLAUS ABBINK

    () (University of Nottingham)

  • JORDI BRANDTS

    () (Institut d'Anàlisi Econòmica (CSIC), Barcelona)

Abstract

We study collusive behaviour in experimental duopolies that compete in prices under dynamic demand conditions. In one treatment the demand grows at a constant rate. In the other treatment the demand declines at another constant rate. The rates are chosen so that the evolution of the demand in one case is just the reverse in time than the one for the other case. We use a box-design demand function so that there are no issues of finding and co-ordinating on the collusive price. Contrary to game-theoretic reasoning, our results show that collusion is significantly larger when the demand shrinks than when it grows. We conjecture that the prospect of rapidly declining profit opportunities exerts a disciplining effect on firms that facilitates collusion and discourages deviation.

Suggested Citation

  • Klaus Abbink & Jordi Brandts, 2005. "Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies," Discussion Papers 2005-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  • Handle: RePEc:not:notcdx:2005-03
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Swoboda, Sandra Maria, 2017. "Einfluss ausgewählter Determinanten auf die Kartellbildung und -stabilität: Eine Literaturstudie," Arbeitspapiere 176, University of Münster, Institute for Cooperatives.
    2. Pedro Mendi & Róbert F. Veszteg, 2009. "Sustainability of collusion: evidence from the late 19th century basque iron and steel industry," Investigaciones Economicas, Fundación SEPI, vol. 33(3), pages 385-405, September.
    3. Miguel A. Fonseca & Hans-Theo Normann, 2013. "Excess Capacity and Pricing in Bertrand-Edgeworth Markets: Experimental Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(2), pages 199-228, June.
    4. Bradley J. Ruffle, 2013. "When Do Large Buyers Pay Less? Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 108-137, March.
    5. Goppelsroeder, Marie, 2009. "Entry in Collusive Markets: An Experimental Study," MPRA Paper 14707, University Library of Munich, Germany.

    More about this item

    Keywords

    Laboratory experiments; industrial organisation; oligopoly; price competition; collusion;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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