Explicit vs. Tacit Collusion - The Impact of Communication in Oligopoly Experiments

38 Pages Posted: 4 Oct 2011  

Miguel Alexandre Fonseca

University of Exeter Business School

Hans-Theo Normann

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

Date Written: July 3, 2011

Abstract

We explore the difference between explicit and tacit collusion by investigating the impact communication has in experimental markets. For Bertrand oligopolies with various numbers of firms, we compare pricing behavior with and without the possibility to communicate among firms. We find strong evidence that talking helps to obtain higher profits for any number of firms, however, the gain from communicating is non-monotonic in the number of firms, with medium-sized industries having the largest additional profit from talking. We also find that industries continue to collude successfully after communication is disabled. Communication supports firms in coordinating on collusive pricing schemes, and it is also used for conflict mediation.

Keywords: cartels, collusion, communication, experiments, repeated games.

JEL Classification: C7, C9, L4, L41

Suggested Citation

Fonseca, Miguel Alexandre and Normann, Hans-Theo, Explicit vs. Tacit Collusion - The Impact of Communication in Oligopoly Experiments (July 3, 2011). Available at SSRN: https://ssrn.com/abstract=1937803 or http://dx.doi.org/10.2139/ssrn.1937803

Miguel Alexandre Fonseca (Contact Author)

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Hans-Theo Normann

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

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