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Spillovers from legal cooperation to tacit collusion

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  • Jeroen Hinloopen
  • Stephen Martin
  • Leonard Treuren

Abstract

Antitrust laws prohibit collusion by private firms, yet many types of interfirm coopera tion are legal. Using laboratory experiments, we study spillovers from legal cooperation in one market to tacit collusion in a different market. Subjects sequentially play two homogeneous goods Bertrand games once against the same opponent. We vary whether subjects can form binding price agreements in the first market. We find that allowing subjects to coordinate their prices in the first market significantly increases prices in the second market, elevating the incidence of non-competitive market prices by more than 60 percent. This shows that repeated interaction and communication are not necessary to achieve non-competitive prices, as long as subjects can form binding agreements in a different market. Additional treatments suggest that commitment and multimarket contact are both necessary and sufficient for spillovers from legal cooperation to tacit collusion to emerge.

Suggested Citation

  • Jeroen Hinloopen & Stephen Martin & Leonard Treuren, 2023. "Spillovers from legal cooperation to tacit collusion," Working Papers of Department of Management, Strategy and Innovation, Leuven 746847, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    • Handle: RePEc:ete:msiper:746847
    Note: paper number DPS 23.12
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