IDEAS home Printed from https://ideas.repec.org/p/zbw/dicedp/299.html
   My bibliography  Save this paper

Pricing behavior in partial cartels

Author

Listed:
  • Odenkirchen, Johannes

Abstract

We analyze the pricing behavior of firms when explicit partial cartels have formed in experimental markets through communication. Using a repeated, asymmetric capacity constraint price game, we show that, in line with theory, a partial cartel is sufficient to increase market prices for all firms. Moreover, we find that prices of cartel insiders and outsiders are not necessarily on the same level what contradicts common theoretical predictions. This is because communication allows cartel members to overcome a potential coordination problem and enables an equilibrium in (joint) mixed strategies to emerge. The results therefore underline the importance of communication in explicit cartels and the resulting market outcomes.

Suggested Citation

  • Odenkirchen, Johannes, 2018. "Pricing behavior in partial cartels," DICE Discussion Papers 299, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:299
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/181967/1/1030432252.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yu Awaya & Vijay Krishna, 2016. "On Communication and Collusion," American Economic Review, American Economic Association, vol. 106(2), pages 285-315, February.
    2. Kai Hüschelrath & Kathrin Müller & Tobias Veith, 2013. "Concrete Shoes For Competition: The Effect Of The German Cement Cartel On Market Price," Journal of Competition Law and Economics, Oxford University Press, vol. 9(1), pages 97-123.
    3. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
    4. Jeannette Brosig & Joachim Weimann & Axel Ockenfels, 2003. "The Effect of Communication Media on Cooperation," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 217-241, May.
    5. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    6. Bryant, Peter G & Eckard, E Woodrow, Jr, 1991. "Price Fixing: The Probability of Getting Caught," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 531-536, August.
    7. Joseph E. Harrington & Andrzej Skrzypacz, 2011. "Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices," American Economic Review, American Economic Association, vol. 101(6), pages 2425-2449, October.
    8. Ola Andersson & Erik Wengström, 2007. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 321-339, June.
    9. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-465, Autumn.
    10. Marc Escrihuela-Villar, 2009. "Does cartel leadership facilitate collusion?," DEA Working Papers 39, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    11. Emmanuel Combe & Constance Monnier & Renaud Legal, 2008. "Cartels: The Probability of Getting Caught in the European Union," Bruges European Economic Research Papers 12, European Economic Studies Department, College of Europe.
    12. Russell Cooper & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1992. "Communication in Coordination Games," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 739-771.
    13. 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.
    14. Susan Athey & Kyle Bagwell, 2008. "Collusion With Persistent Cost Shocks," Econometrica, Econometric Society, vol. 76(3), pages 493-540, May.
    15. Miguel A. Fonseca & Hans-Theo Normann, 2013. "Excess Capacity and Pricing in Bertrand-Edgeworth Markets: Experimental Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(2), pages 199-228, June.
    16. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    17. Donsimoni, Marie-Paule, 1985. "Stable heterogeneous cartels," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 451-467, December.
    18. Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
    19. Lars-Hendrik Röller & Frode Steen, 2006. "On the Workings of a Cartel: Evidence from the Norwegian Cement Industry," American Economic Review, American Economic Association, vol. 96(1), pages 321-338, March.
    20. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-599, May.
    21. Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 585-608, October.
    22. David Rahman, 2014. "The Power of Communication," American Economic Review, American Economic Association, vol. 104(11), pages 3737-3751, November.
    23. MiguelA. Fonseca & Hans-Theo Normann, 2008. "Mergers, Asymmetries and Collusion: Experimental Evidence," Economic Journal, Royal Economic Society, vol. 118(527), pages 387-400, March.
    24. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
    25. Rau, Holger & Clemens, Georg, 2014. "Do Leniency Policies facilitate Collusion? Experimental Evidence," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100509, Verein für Socialpolitik / German Economic Association.
    26. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    27. Marc Escrihuela, 2002. "Cartel Sustainability And Cartel Stability," Working Papers. Serie AD 2002-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    28. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    29. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
    30. Roman Inderst & Frank P. Maier-Rigaud & Ulrich Schwalbe, 2014. "Umbrella Effects," Journal of Competition Law and Economics, Oxford University Press, vol. 10(3), pages 739-763.
    31. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-327, June.
    32. De Francesco, Massimo A. & Salvadori, Neri, 2008. "Bertrand-Edgeworth games under oligopoly with a complete characterization for the triopoly," MPRA Paper 10767, University Library of Munich, Germany, revised 26 Sep 2008.
    33. Volker Nocke, 1999. "Cartel Stability under Capacity Constraints: The Traditional View Restored," STICERD - Economics of Industry Papers 23, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    34. Ben Greiner, 2004. "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working Paper Series in Economics 10, University of Cologne, Department of Economics.
    35. Clemens, Georg & Rau, Holger A., 2014. "Do leniency policies facilitate collusion? Experimental evidence," DICE Discussion Papers 130, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    36. Ben Greiner, 2004. "The Online Recruitment System ORSEE - A Guide for the Organization of Experiments in Economics," Papers on Strategic Interaction 2003-10, Max Planck Institute of Economics, Strategic Interaction Group.
    37. Iwan Bos & Joseph E. Harrington, Jr, 2010. "Endogenous cartel formation with heterogeneous firms," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 92-117, March.
    38. Russell Cooper & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1989. "Communication in the Battle of the Sexes Game: Some Experimental Results," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 568-587, Winter.
    39. Clemens, Georg & Rau, Holger A., 2013. "Rebels without a clue? Experimental evidence on partial cartels," DICE Discussion Papers 69, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    40. 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.
    41. COOPER, R. & DEJONG, D.V. & FORSYTHE, R. & Tom Ross, 1989. "Communication In The Battle Of The Sexes Game," Carleton Industrial Organization Research Unit (CIORU) 89-03, Carleton University, Department of Economics.
    42. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
    43. Emanuel Holler & Maarten Pieter Schinkel, 2017. "Umbrella Effects: Correction And Extension," Journal of Competition Law and Economics, Oxford University Press, vol. 13(1), pages 185-189.
    44. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    45. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Center for Mathematical Economics Working Papers 008, Center for Mathematical Economics, Bielefeld University.
    46. Zu, Lei & Zhang, Jin & Wang, Shouyang, 2012. "The size of stable cartels: An analytical approach," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 217-222.
    47. Helder Vasconcelos, 2005. "Tacit Collusion, Cost Asymmetries, and Mergers," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 39-62, Spring.
    48. Hirata Daisuke, 2009. "Asymmetric Bertrand-Edgeworth Oligopoly and Mergers," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, July.
    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. Maximilian Andres & Lisa Bruttel & Jana Friedrichsen, 2020. "Choosing between explicit cartel formation and tacit collusion – An experiment," CEPA Discussion Papers 19, Center for Economic Policy Analysis.
    2. 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).
    3. Andres, Maximilian & Bruttel, Lisa & Friedrichsen, Jana, 2023. "How communication makes the difference between a cartel and tacit collusion: A machine learning approach," European Economic Review, Elsevier, vol. 152(C).
    4. Georg Clemens & Holger A. Rau, 2022. "Either with us or against us: experimental evidence on partial cartels," Theory and Decision, Springer, vol. 93(2), pages 237-257, September.
    5. 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.
    6. Andres, Maximilian & Bruttel, Lisa & Friedrichsen, Jana, 2021. "How do sanctions work? The choice between cartel formation and tacit collusion," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242372, Verein für Socialpolitik / German Economic Association.
    7. Bovin, Andreas & Bos, Iwan, 2023. "Market Shares as Collusive Marker: Evidence from the European Truck Industry," Research Memorandum 011, Maastricht University, Graduate School of Business and Economics (GSBE).

    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. 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.
    2. Feltovich, Nick & Grossman, Philip J., 2015. "How does the effect of pre-play suggestions vary with group size? Experimental evidence from a threshold public-good game," European Economic Review, Elsevier, vol. 79(C), pages 263-280.
    3. 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.
    4. Francisca Jiménez-Jiménez & Javier Rodero Cosano, 2021. "Experimental cheap talk games: strategic complementarity and coordination," Theory and Decision, Springer, vol. 91(2), pages 235-263, September.
    5. 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.
    6. 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.
    7. Moellers, Claudia & Normann, Hans-Theo & Snyder, Christopher M., 2017. "Communication in vertical markets: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 214-258.
    8. Hu, Youxin & Kagel, John & Yang, Huanxing & Zhang, Lan, 2020. "The effects of pre-play communication in a coordination game with incomplete information," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 403-415.
    9. GRANDJEAN, Gilles & MANTOVANI, Marco & MAULEON, Ana & VANNETELBOSCH, Vincent, 2014. "Whom are you talking with ? An experiment on credibility and communication structure," LIDAM Discussion Papers CORE 2014042, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Georg Clemens & Holger A. Rau, 2022. "Either with us or against us: experimental evidence on partial cartels," Theory and Decision, Springer, vol. 93(2), pages 237-257, September.
    11. repec:hum:wpaper:sfb649dp2014-064 is not listed on IDEAS
    12. Grandjean, Gilles & Mantovani, Marco & Mauleon, Ana & Vannetelbosch, Vincent, 2017. "Communication structure and coalition-proofness – Experimental evidence," European Economic Review, Elsevier, vol. 94(C), pages 90-102.
    13. 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.
    14. Tetsuo Yamamori & Kazuyuki Iwata, 2023. "Wage claim detracts reciprocity in labor relations: experimental study of gift exchange games," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 573-597, July.
    15. Tjaša Bjedov & Thierry Madiès & Marie Claire Villeval, 2016. "Communication And Coordination In A Two-Stage Game," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1519-1540, July.
    16. Fabian Dvorak & Sebastian Fehrler, 2024. "Negotiating Cooperation under Uncertainty: Communication in Noisy, Indefinitely Repeated Interactions," American Economic Journal: Microeconomics, American Economic Association, vol. 16(3), pages 232-258, August.
    17. 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.
    18. Mariana Cunha & Paula Sarmento, 2014. "Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 1-38, March.
    19. Feicht, Robert & Grimm, Veronika & Rau, Holger A. & Stephan, Gesine, 2017. "On the impact of quotas and decision rules in collective bargaining," European Economic Review, Elsevier, vol. 100(C), pages 175-192.
    20. Iwan Bos & Joseph E. Harrington, Jr, 2010. "Endogenous cartel formation with heterogeneous firms," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 92-117, March.
    21. Luke Garrod & Matthew Olczak, 2016. "Collusion, Firm Numbers and Asymmetries Revisited," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2016-11, Centre for Competition Policy, University of East Anglia, Norwich, UK..

    More about this item

    Keywords

    partial cartels; explicit collusion; umbrella effects; experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:zbw:dicedp:299. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/diduede.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.