Pure numbers effects, market power, and tacit collusion in posted offer markets |
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Authors: | Douglas Davis |
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Institution: | aVirginia Commonwealth University, 1015 Floyd Ave, Richmond, VA 23284-4000, USA |
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Abstract: | This paper studies the effects of seller concentration and static market power on tacit collusion in extensively repeated laboratory posted-offer markets. Contrary to the implications of some earlier research, we find that tacit collusion does not become pervasive with extensive repetition. In a ‘strong no-power’ design persistently competitive outcomes are observed in markets with three or four sellers. Even duopolies are frequently competitive in this design. Unilateral market power raises prices, as predicted. However, static Nash predictions fail to organize outcomes across power treatments, because tacit collusion moves inversely with concentration. Excess capacity appears to explain observed tacit collusion levels. |
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Keywords: | Experiments Market concentration Market power |
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