Institutional Authority and Collusion

26 Pages Posted: 31 Jan 2014

See all articles by Axel Sonntag

Axel Sonntag

University of Vienna - Vienna Center for Experimental Economics

Daniel John Zizzo

University of Queensland - School of Economics

Date Written: January 29, 2014

Abstract

A ‘collusion puzzle’ exists by which, even though increasing the number of firms reduces the ability to tacitly collude, and leads to a collapse in collusion in experimental markets with four or more firms, in natural markets there are such numbers of firms colluding successfully. We present an experiment showing that, if managers are deferential towards an authority, firms can induce more collusion by delegating production decisions to middle managers and providing suitable informal nudges. This holds not only with two but also with four firms. We are also able to distinguish compliance effects from coordination effects from the nudges.

Keywords: Collusion, Cournot, oligopoly, authority, delegation, coordination

JEL Classification: L13, L22, C91

Suggested Citation

Sonntag, Axel and Zizzo, Daniel John, Institutional Authority and Collusion (January 29, 2014). Available at SSRN: https://ssrn.com/abstract=2387743 or http://dx.doi.org/10.2139/ssrn.2387743

Axel Sonntag

University of Vienna - Vienna Center for Experimental Economics ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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