Rebels Without a Clue? Experimental Evidence on Partial Cartels

Abstract:     
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 three-stage mechanism with communication which facilitates the formation of a cartel and respectively allows the formation of a partial cartel. All-inclusive cartels are always formed. We find 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: 32

Keywords: Partial Cartels, Coordination, Communication, Experiment

JEL Classification: C92, D2, L41

working papers series