IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v30y2012i6p508-517.html
   My bibliography  Save this article

Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry

Author

Listed:
  • Argenton, Cédric
  • Müller, Wieland

Abstract

Theory, experimental studies, as well as antitrust guidelines suggest that symmetry among firms is conducive to more collusive outcomes. We test this perception in a series of experimental repeated Bertrand duopolies where firms have convex costs. We implement symmetric as well as asymmetric markets that vary in their degree of cost asymmetry among firms. We find no evidence of symmetric markets being more prone to collusion than asymmetric markets. If anything, asymmetry helps firms coordinate on higher prices and achieve higher profits.

Suggested Citation

  • Argenton, Cédric & Müller, Wieland, 2012. "Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 508-517.
    • Handle: RePEc:eee:indorg:v:30:y:2012:i:6:p:508-517
    DOI: 10.1016/j.ijindorg.2012.05.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718712000653
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijindorg.2012.05.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Apesteguia, Jose & Huck, Steffen & Oechssler, Jorg, 2007. "Imitation--theory and experimental evidence," Journal of Economic Theory, Elsevier, vol. 136(1), pages 217-235, September.
    2. Theo Offerman & Jan Potters & Joep Sonnemans, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 973-997.
    3. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 19-32, January.
    4. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632.
    5. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
    6. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
    7. Andreoni, James A & Miller, John H, 1993. "Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence," Economic Journal, Royal Economic Society, vol. 103(418), pages 570-585, May.
    8. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-541, August.
    9. Kübler, D. & Müller, W., 2002. "Simultaneous and sequential price competition on heterogeneous duopoly markets : Experimental evidence," Other publications TiSEM f2d9029e-d44e-48af-8187-f, Tilburg University, School of Economics and Management.
    10. Andersson, Ola & Argenton, Cédric & Weibull, Jörgen, 2010. "Robustness to strategic uncertainty in price competition," SSE/EFI Working Paper Series in Economics and Finance 0726, Stockholm School of Economics, revised 08 Apr 2010.
    11. Alos-Ferrer, Carlos & Ania, Ana B. & Schenk-Hoppe, Klaus Reiner, 2000. "An Evolutionary Model of Bertrand Oligopoly," Games and Economic Behavior, Elsevier, vol. 33(1), pages 1-19, October.
    12. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
    13. Kubler, Dorothea & Muller, Wieland, 2002. "Simultaneous and sequential price competition in heterogeneous duopoly markets: experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1437-1460, December.
    14. Keser, Claudia, 2000. "Cooperation in symmetric duopolies with demand inertia," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 23-38, January.
    15. Christoph Engel, 2007. "How Much Collusion? A Meta-Analysis Of Oligopoly Experiments," Journal of Competition Law and Economics, Oxford University Press, vol. 3(4), pages 491-549.
    16. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages 80-95, March.
    17. Davies, Stephen & Olczak, Matthew & Coles, Heather, 2011. "Tacit collusion, firm asymmetries and numbers: Evidence from EC merger cases," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 221-231, March.
    18. Selten, Reinhard & Stoecker, Rolf, 1986. "End behavior in sequences of finite Prisoner's Dilemma supergames A learning theory approach," Journal of Economic Behavior & Organization, Elsevier, vol. 7(1), pages 47-70, March.
    19. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
    20. MiguelA. Fonseca & Hans-Theo Normann, 2008. "Mergers, Asymmetries and Collusion: Experimental Evidence," Economic Journal, Royal Economic Society, vol. 118(527), pages 387-400, March.
    21. Charles F. Mason & Owen R. Phillips, 1997. "Information And Cost Asymmetry In Experimental Duopoly Markets," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 290-299, May.
    22. Harrington, Joseph E, Jr, 1991. "The Determination of Price and Output Quotas in a Heterogeneous Cartel," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 767-792, November.
    23. Mason, Charles F & Phillips, Owen R & Nowell, Clifford, 1992. "Duopoly Behavior in Asymmetric Markets: An Experimental Evaluation," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 662-670, November.
    24. Keser, Claudia, 1993. "Some Results of Experimental Duopoly Markets with Demand Intertia," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 133-151, June.
    25. Bruttel, Lisa V., 2009. "Group dynamics in experimental studies--The Bertrand Paradox revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 69(1), pages 51-63, January.
    26. Hoernig, Steffen H., 2002. "Mixed Bertrand equilibria under decreasing returns to scale: an embarrassment of riches," Economics Letters, Elsevier, vol. 74(3), pages 359-362, February.
    27. 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.
    28. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
    29. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    30. Boone, Jan & Larraín Aylwin, María Jose & Müller, Wieland & Ray Chaudhuri, Amrita, 2012. "Bertrand competition with asymmetric costs: Experimental evidence," Economics Letters, Elsevier, vol. 117(1), pages 134-137.
    31. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August.
    32. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
    33. Altavilla, Carlo & Luini, Luigi & Sbriglia, Patrizia, 2006. "Social learning in market games," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 632-652, December.
    34. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    35. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
    36. Dixon, Huw, 1990. "Bertrand-Edgeworth Equilibria when Firms Avoid Turning Customers Away," Journal of Industrial Economics, Wiley Blackwell, vol. 39(2), pages 131-146, December.
    37. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, vol. 53(4), pages 905-922, July.
    38. Weibull, Jörgen, 2006. "Price competition and convex costs," SSE/EFI Working Paper Series in Economics and Finance 622, Stockholm School of Economics, revised 23 Feb 2006.
    39. Helder Vasconcelos, 2005. "Tacit Collusion, Cost Asymmetries, and Mergers," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 39-62, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jan Potters & Sigrid Suetens, 2013. "Oligopoly Experiments In The Current Millennium," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 439-460, July.
    2. Subhasish Dugar & Arnab Mitra, 2016. "Bertrand Competition With Asymmetric Marginal Costs," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1631-1647, July.
    3. Argenton, Cédric & Ivanova-Stenzel, Radosveta & Müller, Wieland, 2024. "Cournot meets Bayes-Nash: A discontinuity in behavior in finitely repeated duopoly games," Games and Economic Behavior, Elsevier, vol. 144(C), pages 1-12.
    4. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
    5. Klaus Abbink & Jordi Brandts, 2005. "Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies," UFAE and IAE Working Papers 648.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    6. Harrington, Joseph E. & Hernan Gonzalez, Roberto & Kujal, Praveen, 2016. "The relative efficacy of price announcements and express communication for collusion: Experimental findings," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 251-264.
    7. Argenton, Cedric & Ivanova-Stenzel, Radosveta & Müller, Wieland, 2022. "Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games," Other publications TiSEM 03d1f1c4-0f0f-4d7c-8428-4, Tilburg University, School of Economics and Management.
    8. Argenton, Cedric & Ivanova-Stenzel, Radosveta & Müller, Wieland, 2022. "Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games," Other publications TiSEM bec182fc-5222-4ec2-9632-3, Tilburg University, School of Economics and Management.
    9. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    10. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    11. António Brandão & Joana Pinho & Hélder Vasconcelos, 2014. "Asymmetric Collusion with Growing Demand," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 429-472, December.
    12. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
    13. Daniel Cracau & Benjamin Franz, 2012. "An experimental study of mixed strategy equilibria in simultaneous price-quantity games," FEMM Working Papers 120017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    14. Darai, D. & Roux, C. & Schneider, F., 2019. "Mergers, Mavericks, and Tacit Collusion," Cambridge Working Papers in Economics 1984, Faculty of Economics, University of Cambridge.
    15. Selten, Reinhard & Apesteguia, Jose, 2005. "Experimentally observed imitation and cooperation in price competition on the circle," Games and Economic Behavior, Elsevier, vol. 51(1), pages 171-192, April.
    16. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2013. "Optimal collusion with limited liability," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(3), pages 203-227, September.
    17. Klaus Abbink & Jordi Brandts, 2005. "Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies," UFAE and IAE Working Papers 648.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    18. Benndorf, Volker & Odenkirchen, Johannes, 2021. "An experiment on partial cross-ownership in oligopolistic markets," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    19. Jacobs, Martin & Requate, Till, 2016. "Bertrand-Edgeworth markets with increasing marginal costs and voluntary trading: Experimental evidence," Economics Working Papers 2016-01, Christian-Albrechts-University of Kiel, Department of Economics.
    20. Klaus Abbink & Jordi Brandts, 2002. "24," UFAE and IAE Working Papers 523.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
      • Jordi Brandts & Klaus Abbink, 2004. "24," Levine's Bibliography 122247000000000073, UCLA Department of Economics.

    More about this item

    Keywords

    Bertrand competition; Convex costs; Collusion; Coordination; Experimental economics;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:30:y:2012:i:6:p:508-517. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.