Why factors facilitating collusion may not predict cartel occurrence — experimental evidence |
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| Authors: | Miguel A Fonseca Yan Li Hans-Theo Normann |
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| Institution: | 1. University of Exeter Business School, Streatham Court, Rennes Drive, Exeter EX4 4PU, UK and NIPE, Universidade do Minho;2. E-mail: m.a.fonseca@exeter.ac.uk.;3. University of Liverpool Management School, Chatham Building, Chatham Street, Liverpool L69 7ZH, UK;4. E-mail: yan.li3@liverpool.ac.uk.;5. Duesseldorf Institute for Competition Economics, Heinrich-Heine-Universitaet Duesseldorf Universitaetsstr. 1, 40225, Duesseldorf, Germany;6. E-mail: normann@dice.hhu.de;7. corresponding author. |
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| Abstract: | 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. |
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| Keywords: | L42 C90 C70 |
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