Price Ceilings as Focal Points? An Experimental Test

Abstract

In this experiment, we analyze whether price ceilings can have a collusive effect in laboratory markets. Our main interest is the focal-point hypothesis which says that a price ceiling may facilitate tacit collusion and lead to higher prices because it resolves a coordination problem inherent to collusion. Our results reject the focal-point hypothesis. Markets with price ceilings have lower prices than markets with unconstrained pricing. The static Nash equilibrium predicts the data accurately.

Keywords: Collusion, competition policy, experimental economics, focal points

JEL Classification: C90, C92, L41, L13