Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment |
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Authors: | Lisa R Anderson Beth A Freeborn Jason P Hulbert |
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Institution: | 1. Department of Economics, College of William and Mary, Williamsburg, VA, USA 2. Bureau of Economics, Federal Trade Commission, 600 Pennsylvania Ave., NW, Washington, DC, 20580, USA 3. Department of Economics, University of Maryland, College Park, MD, USA
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Abstract: | Recent research has found significant differences in the ability of subjects tacitly to collude, depending on the nature of
the strategic interaction (e.g., Cournot vs. Bertrand or substitutes vs. complements goods). We investigate the relationship
between subject-specific risk tolerance and tacit collusion in Bertrand duopoly experiments. We find that less risk-averse
subjects price higher than do their more risk-averse counterparts, but this relationship is only significant when actions
are strategic substitutes. When we analyze pair-level data, we find that non-risk averse subject pairs price significantly
higher than do risk averse and mixed pairs in both the substitutes and complements treatments. |
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