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Entry in Collusive Markets: An Experimental Study

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  • Goppelsroeder, Marie

Abstract

In this paper we present an experiment in which we test the effects of sequential entry on the stability of collusion in oligopoly markets. Theoretical as well as experimental research suggests that a larger number of firms in an industry makes collusion harder to sustain. In this study, we explore to what extent collusion can be upheld with exogenous entry when groups start off small and when it is common knowledge that the entrant is informed about the history of her group prior to entry. We find that collusion is indeed easier to sustain in the latter case than in groups starting large. We conjecture that an implicit coordination problem is resolved more easily in a smaller group and that coordination, once it has been established, can be transferred to the enlarged group by means of a common code of conduct. Moreover, the results suggest that entrants emulate the behavior of their group upon entry.

Suggested Citation

  • Goppelsroeder, Marie, 2009. "Entry in Collusive Markets: An Experimental Study," MPRA Paper 14707, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14707
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    File URL: https://mpra.ub.uni-muenchen.de/14707/1/MPRA_paper_14707.pdf
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    References listed on IDEAS

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    3. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages 80-95, March.
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    5. Steffen Huck & Kai A. Konrad & Wieland Müller & Hans-Theo Normann, 2007. "The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory," Economic Journal, Royal Economic Society, vol. 117(522), pages 1073-1095, July.
    6. Klaus Abbink & Jordi Brandts, 2005. "Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies," Working Papers 168, Barcelona Graduate School of Economics.
    7. William T. Robinson, 1988. "Marketing Mix Reactions to Entry," Marketing Science, INFORMS, vol. 7(4), pages 368-385.
    8. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
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    11. 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.
    12. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March.
    13. Gupta, Bishnupriya, 1997. "Collusion in the Indian Tea Industry in the Great Depression: An Analysis of Panel Data," Explorations in Economic History, Elsevier, vol. 34(2), pages 155-173, April.
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    Cited by:

    1. Kimbrough, Erik O., 2011. "Heuristic learning and the discovery of specialization and exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 491-511, April.

    More about this item

    Keywords

    Collusion; Entry; Experiments;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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