Working Papers, Department of Economics, Lund University
No 2004:14:
Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies
Ola Andersson ()
and Erik Wengström ()
Abstract: Using Bertrand supergames with communication, we 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. We
find that increasing the cost of communication results in a significantly
higher price level. Moreover, making communication costly decreases the
number of messages, but more importantly, it enhances the stability of
collusive agreements. By letting the cost of communication symbolize the
presence of an antitrust law that prohibits firms from discussing prices,
McCutcheon (1997) presents an interesting application to antitrust policy.
The experimental results support her theoretical prediction that antitrust
laws might work in the interest of firms.
Keywords: Antitrust Policy; Experiments; Collusion; Costly Communication; Weakly Renegotiation-proof Equilibria; (follow links to similar papers)
JEL-Codes: C90; D43; L40; (follow links to similar papers)
41 pages, April 13, 2004, Revised September 13, 2004
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- This paper is published as:
-
Andersson, Ola and Erik Wengström, (2007), 'Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies', The Scandinavian Journal of Economics, Vol. 109, No. 2, pages 321-339
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