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Do antitrust laws facilitate collusion? Experimental evidence on costly communication in duopolies

Andersson, Ola LU and Wengström, Erik LU (2007) In Scandinavian Journal of Economics 109(2). p.321-339
Abstract
Bertrand supergames with non- binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero- cost, low- cost and high- cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. McCutcheon ( 1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support... (More)
Bertrand supergames with non- binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero- cost, low- cost and high- cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. McCutcheon ( 1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support the mechanism of McCutcheon's ( 1997) argument, the findings point in the direction of her prediction that antitrust laws might work in the interest of firms. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
renegotiation-proof equilibria, weakly, costly communication, collusion, antitrust policy, experiments
in
Scandinavian Journal of Economics
volume
109
issue
2
pages
321 - 339
publisher
Wiley-Blackwell
external identifiers
  • wos:000249199500008
  • scopus:34548348354
ISSN
1467-9442
DOI
10.1111/j.1467-9442.2007.00500.x
language
English
LU publication?
yes
id
fe1800fa-653c-4c23-bec6-f359c375e36d (old id 656932)
date added to LUP
2007-12-05 15:52:18
date last changed
2017-07-30 04:30:17
@article{fe1800fa-653c-4c23-bec6-f359c375e36d,
  abstract     = {Bertrand supergames with non- binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero- cost, low- cost and high- cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. McCutcheon ( 1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support the mechanism of McCutcheon's ( 1997) argument, the findings point in the direction of her prediction that antitrust laws might work in the interest of firms.},
  author       = {Andersson, Ola and Wengström, Erik},
  issn         = {1467-9442},
  keyword      = {renegotiation-proof equilibria,weakly,costly communication,collusion,antitrust policy,experiments},
  language     = {eng},
  number       = {2},
  pages        = {321--339},
  publisher    = {Wiley-Blackwell},
  series       = {Scandinavian Journal of Economics},
  title        = {Do antitrust laws facilitate collusion? Experimental evidence on costly communication in duopolies},
  url          = {http://dx.doi.org/10.1111/j.1467-9442.2007.00500.x},
  volume       = {109},
  year         = {2007},
}