Price Ceilings as Focal Points? An Experimental Test

24 Pages Posted: 30 Aug 2007

See all articles by Hans-Theo Normann

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods

Dirk Engelmann

University of London - Royal Holloway - Department of Economics

Date Written: March 2006

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

Suggested Citation

Normann, Hans-Theo and Engelmann, Dirk, Price Ceilings as Focal Points? An Experimental Test (March 2006). Available at SSRN: https://ssrn.com/abstract=1010580 or http://dx.doi.org/10.2139/ssrn.1010580

Hans-Theo Normann (Contact Author)

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Dirk Engelmann

University of London - Royal Holloway - Department of Economics ( email )

Egham, TW20 0EX
United Kingdom

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