Rebels Without a Clue? Experimental Evidence on Partial Cartels
Heinrich Heine Universität Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)
Holger Andreas Rau
University of Göttingen
This paper provides experimental evidence on the formation of partial cartels with endogenous coordination. Firms face a coordination challenge when a partial cartel is to be formed as every firm is better off if it is not inside the cartel but is a free-riding outsider. We introduce a two-stage mechanism with communication which facilitates the formation of a cartel and respectively allows the formation of a partial cartel. We find that the communication option and the two-stage mechanism serve as powerful instruments enhancing firms to form all-inclusive cartels which are always formed. Our control treatments emphasize that firms face problems to form cartels in the absence of communication. Strikingly, our results highlight that partial cartels are frequently rejected out-of-equilibrium if outside firms profit excessively from the formation of the cartel.
Number of Pages in PDF File: 36
Keywords: Partial Cartels, Coordination, Communication, Experiment
JEL Classification: C92, D2, L41working papers series
Date posted: March 29, 2012 ; Last revised: June 1, 2014
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