Cartel Coordination and the Role of Payoff Asymmetries: Experimental Evidence on Partial Cartels
27 Pages Posted: 29 Mar 2012 Last revised: 16 Oct 2014
Date Written: October 2014
This paper provides evidence on the coordination to partial cartels in the presence of payoff asymmetries. 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. Although theory predicts three-firm cartels to occur we hardly find firms coordinating to these cartels when communication is possible. Instead, in the communication treatments firms coordinate to all-inclusive cartels which are always formed. Our control treatments emphasize that coordination problems occur when chat is absent. Strikingly, firms seem to care about payoff asymmetries, i.e., partial cartels are frequently rejected out-of-equilibrium if outside firms profit excessively from the formation of the cartel.
Keywords: Partial Cartels, Coordination, Communication, Experiment
JEL Classification: C92, D2, L41
Suggested Citation: Suggested Citation