IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/935.html
   My bibliography  Save this paper

Testing Game Theoretic Models of Price-Fixing Behaviour

Author

Abstract

This paper analyzes price fixing by the Joint Executive Committee railroad cartel from 1880 to 1886 and develops tests of two game-theoretic models of tacit collusion. The first model, due to Abreu, Pearce and Stacchetti (1986), predicts that price will switch across regimes according to a Markov process. The second, by Rotemberg and Saloner (1986), postulates that price wars are more likely in periods of high industry demand. Switching regressions are used to model the firms' shifting between collusive and punishment behavior. The main econometric novelty in the estimation procedures introduced in this paper is that misclassification probabilities are allowed to vary endogenously over time. The JEC data set is expanded to include measures of grain production to be shipped and availability of substitute transportation services. Our findings cast doubt on the applicability of the Rotemberg and Saloner model to the JEC railroad cartel, while they confirm the Markovian prediction of the Abreu, et al. Model.

Suggested Citation

  • Vassilis A. Hajivassiliou, 1990. "Testing Game Theoretic Models of Price-Fixing Behaviour," Cowles Foundation Discussion Papers 935, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:935
    as

    Download full text from publisher

    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d09/d0935.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    2. Michael H. Riordan, 1985. "Imperfect Information and Dynamic Conjectural Variations," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 41-50, Spring.
    3. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    4. Nelson, Forrest D., 1977. "Censored regression models with unobserved, stochastic censoring thresholds," Journal of Econometrics, Elsevier, vol. 6(3), pages 309-327, November.
    5. Goldfelfd, Stephen M. & Quandt, Richard E., 1975. "Estimation in a disequilibrium model and the value of information," Journal of Econometrics, Elsevier, vol. 3(4), pages 325-348, November.
    6. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    7. Vassilis A. Hajivassiliou & Daniel L. McFadden, 1998. "The Method of Simulated Scores for the Estimation of LDV Models," Econometrica, Econometric Society, vol. 66(4), pages 863-896, July.
    8. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    9. Cosslett, Stephen R. & Lee, Lung-Fei, 1985. "Serial correlation in latent discrete variable models," Journal of Econometrics, Elsevier, vol. 27(1), pages 79-97, January.
    10. Hajivassiliou, Vassilis Argyrou, 1986. "Two misspecification tests for the simple switching regressions disequilibrium model," Economics Letters, Elsevier, vol. 22(4), pages 343-348.
    11. Fair, Ray C & Jaffee, Dwight M, 1972. "Methods of Estimation for Markets in Disequilibrium," Econometrica, Econometric Society, vol. 40(3), pages 497-514, May.
    12. Berry, Steven & Briggs, Hugh, 1988. "A non-parametric test of a first-order Markov process for regimes in a non-cooperatively collusive industry," Economics Letters, Elsevier, vol. 27(1), pages 73-77.
    13. Lee, Lung-Fei & Porter, Robert H, 1984. "Switching Regression Models with Imperfect Sample Separation Information-With an Application on Cartel Stability," Econometrica, Econometric Society, vol. 52(2), pages 391-418, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richards, Timothy J. & Patterson, Paul M., 2004. "Causes of retail price fixity: an empirical analysis," Journal of Economics and Business, Elsevier, vol. 56(2), pages 117-136.
    2. David G. Pearce, 1991. "Repeated Games: Cooperation and Rationality," Cowles Foundation Discussion Papers 983, Cowles Foundation for Research in Economics, Yale University.

    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. Hajivassiliou, Vassilis, 2019. "Switching regressions with imperfect regime classification information: theory and applications," LSE Research Online Documents on Economics 103119, London School of Economics and Political Science, LSE Library.
    2. Richards, Timothy J. & Patterson, Paul M., 2004. "Causes of retail price fixity: an empirical analysis," Journal of Economics and Business, Elsevier, vol. 56(2), pages 117-136.
    3. Lee, Lung-Fei, 1997. "Simulation estimation of dynamic switching regression and dynamic disequilibrium models -- some Monte Carlo results," Journal of Econometrics, Elsevier, vol. 78(2), pages 179-184, June.
    4. Marcelo Resende & Rodrigo M. Zeidan, 2011. "Tacit Collusion under Imperfect Monitoring in the Canadian Manufacturing Industry: An Empirical Study," CESifo Working Paper Series 3623, CESifo.
    5. Adam Rosen, 2007. "Identification and estimation of firms' marginal cost functions with incomplete knowledge of strategic behavior," CeMMAP working papers CWP03/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    6. 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.
    7. Liliane Karlinger, 2008. "How Demand Information Can Destabilize a Cartel," Vienna Economics Papers 0803, University of Vienna, Department of Economics.
    8. Marcel Canoy & Patrick Rey & Eric van Damme, 2004. "Dominance and Monopolization," Chapters, in: Manfred Neumann & Jürgen Weigand (ed.), The International Handbook of Competition, chapter 7, Edward Elgar Publishing.
    9. Luke Garrod & Matthew Olczak, 2017. "Collusion Under Imperfect Monitoring with Asymmetric Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 654-682, September.
    10. Andrea Amelio & Sara Biancini, 2010. "Alternating Monopoly And Tacit Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 402-423, June.
    11. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
    12. Athreya, Kartik B., 2014. "Big Ideas in Macroeconomics: A Nontechnical View," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262019736, April.
    13. Garrod, Luke & Olczak, Matthew, 2018. "Explicit vs tacit collusion: The effects of firm numbers and asymmetries," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 1-25.
    14. Robert Gagné & Simon van Norden & Bruno Versaevel, 2003. "Testing Optimal Punishment Mechanisms Under Price Regulation: the Case of the Retail Market for Gasoline," CIRANO Working Papers 2003s-57, CIRANO.
    15. Batlome Janjgava & Sergey Slobodyan, 2011. "Duopoly Competition, Escape Dynamics and Non-cooperative Collusion," CERGE-EI Working Papers wp445, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    16. Taub, B., 2023. "Signal-jamming in the frequency domain," Games and Economic Behavior, Elsevier, vol. 142(C), pages 896-930.
    17. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2019. "An analysis of price competition and price wars in Australia's domestic airline market," Transport Policy, Elsevier, vol. 81(C), pages 163-172.
    18. Margaret C. Levenstein & Valerie Y. Suslow, 2002. "What Determines Cartel Success?," UMASS Amherst Economics Working Papers 2002-01, University of Massachusetts Amherst, Department of Economics.
    19. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2004. "Collusion and Price Rigidity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 317-349.
    20. Connor, John M., 2003. "Private International Cartels: Effectiveness, Welfare, And Anticartel Enforcement," Staff Papers 28645, Purdue University, Department of Agricultural Economics.

    More about this item

    Keywords

    Tact collusion; cartels; price competition; railroads; transportation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    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:cwl:cwldpp:935. 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: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    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.