Why factors facilitating collusion may not predict cartel occurrence — experimental evidence

Abstract

TITLEWhy factors facilitating collusion may not predict cartel occurrence -experimental evidence AUTHORS Fonseca, M; Normann, HT; Li, Y JOURNAL Southern Economic Journal DEPOSITED IN ORE September 2018This version available at http://hdl.handle.net/10871/33888 COPYRIGHT AND REUSEOpen Research Exeter makes this work available in accordance with publisher policies. A NOTE ON VERSIONSThe version presented here may differ from the published version. May 2018Abstract Factors facilitating collusion may not successfully predict cartel occurrence: when a factor predicts that collusion (explicit and tacit) becomes easier, firms might be less inclined to set up a cartel simply because tacit coordination already tends to go in hand with supra-competitive profits. We illustrate this issue with laboratory data. We run n-firm Cournot experiments with written cheap-talk communication between players and we compare them to treatments without the possibility to talk. We conduct this comparison for two, four and six firms. We find that two firms indeed find it easier to collude tacitly but that the number of firms does not significantly affect outcomes with communication. As a result, the payoff gain from communication increases with the number of firms, at a decreasing rate.JEL classification: L42, C90, C70

Market Concentration and Incentives to Collude in Cournot Oligopoly Experiments

“…Waichman et al (2014) found a higher frequency of collusion counts in duopolies than in triopolies when communication was not possible, although the effect was not significant in the manager sample. Similarly, Fonseca et al (2018) found an increase in the collusiveness of output when the number of firms decreases from six to four and from four to two, in treatments without communication. In quadropolies without a forward market, output was more competitive than the equilibrium prediction, but more collusive than equilibrium in duopolies (Le Coq and Orzen, 2006).…”

“…on the other hand, evidence shows that with communication, even large groups manage to collude, therefore the number effect is not found even with the standard Cournot payoff function (Waichman et al, 2014;Fonseca et al, 2018). It would also be interesting to extend the setup to other games, for example, Bertrand competition, where a similar number effect has been observed for both tacit and explicit collusion (Fonseca and Normann, 2012).…”

The Effects of Private Damage Claims on Cartel Activity: Experimental Evidence

“…After 60 seconds, the chat window closes and subjects enter stage 2. Among others, Cooper and Kühn (2014), Fonseca and Normann (2012) and Harrington et al (2016) have used similar chat devices in oligopoly experiments. Brosig et al (2003) investigate the issue of the communication format on cooperation in general.…”

“…Our final hypothesis is about the impact of the different forms of communication. Existing experimental evidence (Cooper and Kühn, 2014;Fonseca and Normann, 2012) (Brosig et al, 2003). Also, subjects can communicate entire strategies rather than just price targets.…”

“…Cheap talk is recognized as an important tool for the coordination of cooperative outcomes in experiments (Blume and Ortmann, 2007;Camera et al, 2011;Cooper et al, 1992). In the field of antitrust, experiments identify this kind of chat as a powerful device for fostering collusion (Kruse and Schenk, 2000;Cooper and Kühn, 2014;Fonseca and Normann, 2012;Waichman et al, 2014). While the comparison of chat to structured price announcements has been made for collusion experiments without leniency (recently, Harrington et al (2016)), it seems promising to conduct this comparison with the inclusion of leniency.…”