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Do buyer groups facilitate collusion?

Author

Listed:
  • Normann, Hans-Theo
  • Rösch, Jürgen
  • Schultz, Luis Manuel

Abstract

We explore whether lawful cooperation in buyer groups facilitates collusion in the product market. Buyer groups purchase inputs more economically. In a repeated game, abandoning the buyer group altogether or excluding single firms constitute credible threats. Hence, in theory, buyer groups facilitate collusion. We run several experimental treatments using three-firm Cournot markets to test these predictions and other effects like how buyer groups affect outcomes when group members can communicate. The experimental results show that buyer groups lead to lower outputs when groups can exclude single firms. Communication is often abused for explicit agreements and this strongly reduces competition.

Suggested Citation

  • Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2014. "Do buyer groups facilitate collusion?," DICE Discussion Papers 74 [rev.], University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:74r
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    References listed on IDEAS

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    1. Vital Anderhub & Werner Güth & Ulrich Kamecke & Hans-Theo Normann, 2003. "Capacity Choices and Price Competition in Experimental Markets," Experimental Economics, Springer;Economic Science Association, vol. 6(1), pages 27-52, June.
    2. Michelle S. Goeree & Eric Helland, 2009. "Do research joint ventures serve a collusive function?," IEW - Working Papers 448, Institute for Empirical Research in Economics - University of Zurich, revised Jul 2012.
    3. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, September.
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    5. Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
    6. Fonseca, Miguel A. & Normann, Hans-Theo, 2014. "Endogenous cartel formation: Experimental evidence," Economics Letters, Elsevier, vol. 125(2), pages 223-225.
    7. Bigoni, Maria & Fridolfsson, Sven-Olof & Le Coq, Chloé & Spagnolo, Giancarlo, 2008. "Fines, Leniency and Rewards in Antitrust: An Experiment," Working Paper Series 738, Research Institute of Industrial Economics, revised 06 Aug 2009.
    8. Ben Greiner, 2004. "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working Paper Series in Economics 10, University of Cologne, Department of Economics.
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    10. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June.
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    12. Andreas Nicklisch, 2012. "Does collusive advertising facilitate collusive pricing? Evidence from experimental duopolies," European Journal of Law and Economics, Springer, vol. 34(3), pages 515-532, December.
    13. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    buyer groups; cartels; collusion; communication; experiments; repeated games;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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