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Endogenous cartel formation: Experimental evidence

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  • Fonseca, Miguel A.
  • Normann, Hans-Theo

Abstract

In a Bertrand-oligopoly experiment, firms choose whether or not to engage in cartel-like communication and, if so, they may get fined by a cartel authority. We find that the four-firm industries form cartels more often than the duopolies because they gain less from a hysteresis effect after cartel disruption.

Suggested Citation

  • Fonseca, Miguel A. & Normann, Hans-Theo, 2014. "Endogenous cartel formation: Experimental evidence," Economics Letters, Elsevier, vol. 125(2), pages 223-225.
    • Handle: RePEc:eee:ecolet:v:125:y:2014:i:2:p:223-225
    DOI: 10.1016/j.econlet.2014.09.014
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    References listed on IDEAS

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    1. Stephen Davies & Oindrila De, 2013. "Ringleaders in Larger Number Asymmetric Cartels," Economic Journal, Royal Economic Society, vol. 123(11), pages 524-544, November.
    2. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
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    5. Fonseca, Miguel A. & Normann, Hans-Theo, 2012. "Explicit vs. tacit collusion—The impact of communication in oligopoly experiments," European Economic Review, Elsevier, vol. 56(8), pages 1759-1772.
    6. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Maria Bigoni & Sven-Olof Fridolfsson & Chloé Le Coq & Giancarlo Spagnolo, 2012. "fines, leniency, and rewards in antitrust," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 368-390, June.
    8. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616, June.
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    Cited by:

    1. Swoboda, Sandra Maria, 2017. "Einfluss ausgewählter Determinanten auf die Kartellbildung und -stabilität: Eine Literaturstudie," Arbeitspapiere 176, University of Münster, Institute for Cooperatives.
    2. Maximilian Andres & Lisa Bruttel & Jana Friedrichsen, 2019. "The Effect of a Leniency Rule on Cartel Formation and Stability: Experiments with Open Communication," Discussion Papers of DIW Berlin 1835, DIW Berlin, German Institute for Economic Research.
    3. Peter T. Dijkstra & Marco A. Haan & Lambert Schoonbeek, 2021. "Leniency Programs and the Design of Antitrust: Experimental Evidence with Free-Form Communication," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(1), pages 13-36, August.
    4. Xiaowei Wang & Wuyan Long & Meiyue Sang & Yang Yang, 2022. "Towards Sustainable Urbanization: Exploring the Influence Paths of the Urban Environment on Bidders’ Collusive Willingness," Land, MDPI, vol. 11(2), pages 1-14, February.
    5. Andres, Maximilian & Bruttel, Lisa & Friedrichsen, Jana, 2021. "The leniency rule revisited: Experiments on cartel formation with open communication," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    6. Chowdhury, Subhasish M. & Crede, Carsten J., 2020. "Post-cartel tacit collusion: Determinants, consequences, and prevention," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    7. Gomez-Martinez, Francisco, 2017. "Partial Cartels and Mergers with Heterogenous Firms: Experimental Evidence," EconStor Preprints 169380, ZBW - Leibniz Information Centre for Economics.
    8. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2015. "Do buyer groups facilitate collusion?," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 72-84.
    9. Andreas Freitag & Catherine Roux & Christian Thöni, 2021. "Communication And Market Sharing: An Experiment On The Exchange Of Soft And Hard Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 175-198, February.
    10. Gomez-Martinez, Francisco, 2016. "Partial Cartels and Mergers with Heterogeneous Firms: Experimental Evidence," MPRA Paper 81132, University Library of Munich, Germany, revised 01 Jul 2017.
    11. repec:cte:werepe:25251 is not listed on IDEAS
    12. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2014. "Do buyer groups facilitate collusion?," DICE Discussion Papers 74 [rev.], Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Darai, D. & Roux, C. & Schneider, F., 2019. "Mergers, Mavericks, and Tacit Collusion," Cambridge Working Papers in Economics 1984, Faculty of Economics, University of Cambridge.
    14. Nobuyuki Hanaki & Ali I. Ozkes, 2023. "Strategic environment effect and communication," Experimental Economics, Springer;Economic Science Association, vol. 26(3), pages 588-621, July.
    15. Tebbe, Eva, 2018. "Once bitten, twice shy? Market size affects the effectiveness of a leniency program by (de-)activating hysteresis effects," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168304, Verein für Socialpolitik / German Economic Association, revised 2018.
    16. Gomez-Martinez, Francisco & Onderstal, Sander & Sonnemans, Joep, 2016. "Firm-specific information and explicit collusion in experimental oligopolies," European Economic Review, Elsevier, vol. 82(C), pages 132-141.
    17. Fonseca, Miguel A. & Gonçalves, Ricardo & Pinho, Joana & Tabacco, Giovanni A., 2022. "How do antitrust regimes impact on cartel formation and managers’ labor market? An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 643-662.

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    More about this item

    Keywords

    Cartels; Collusion; Communication; Experiments; Repeated games;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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