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Cartel Coordination and the Role of Payoff Asymmetries: Experimental Evidence on Partial Cartels

27 Pages Posted: 29 Mar 2012 Last revised: 16 Oct 2014

Georg Clemens

Compass Lexecon

Holger Andreas Rau

University of Göttingen

Date Written: October 2014

Abstract

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

Clemens, Georg and Rau, Holger Andreas, Cartel Coordination and the Role of Payoff Asymmetries: Experimental Evidence on Partial Cartels (October 2014). Available at SSRN: https://ssrn.com/abstract=2030331 or http://dx.doi.org/10.2139/ssrn.2030331

Georg Clemens

Compass Lexecon ( email )

23 Square de Meeûs
Brussels, 1000
Belgium

Holger Andreas Rau (Contact Author)

University of Göttingen ( email )

Platz der Göttinger Sieben 3
Göttingen, Niedersachsen 37073
Germany

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