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Tacit collusion of conglomerate firms through price signaling under multimarket contact

42 Pages Posted: 23 Jul 2014 Last revised: 26 Apr 2016

Niklas Horstmann

Karlsruhe Institute of Technology

Jan Kraemer

University of Passau

Date Written: April 17, 2016

Abstract

We suggest a price signaling strategy that offers a microfoundation for the process leading to tacit collusion under multimarket contact, even in cases where previous theoretical explanations fail. It rests on the assumptions that firms can communicate collusive intentions solely through their price setting behavior and that such price signaling can be conducted more efficiently under multimarket contact. We are able to verify these assumptions by means of an economic laboratory experiment. Our results bear important insights for competition policy by highlighting that limiting firms' possibilities to engage in price signaling can effectively mitigate the emergence of tacit collusion.

Keywords: multimarket contact, tacit collusion, price signaling, markov process, uniform pricing constraint

JEL Classification: C92, L13, L41

Suggested Citation

Horstmann, Niklas and Kraemer, Jan, Tacit collusion of conglomerate firms through price signaling under multimarket contact (April 17, 2016). Available at SSRN: https://ssrn.com/abstract=2469452 or http://dx.doi.org/10.2139/ssrn.2469452

Niklas Horstmann (Contact Author)

Karlsruhe Institute of Technology ( email )

Institute of Information Systems and Marketing
Fritz-Erler-Str. 23
Karlsruhe, 76133
Germany
+49 721 608-48378 (Phone)
+49 721 608-48399 (Fax)

HOME PAGE: http://iism.kit.edu/im/horstmann

Jan Kraemer

University of Passau ( email )

Chair of Internet and Telecommunications Business
Dr.-Hans-Kapfinger-Str. 12
Passau, D-94036
Germany
+498515092580 (Phone)
+498525092582 (Fax)

HOME PAGE: http://www.kraemer.biz

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