An Experiment on Innovation and Collusion

44 Pages Posted: 3 Aug 2017 Last revised: 21 Mar 2019

See all articles by Andrew Smyth

Andrew Smyth

Boise State University - Department of Economics

Date Written: March 1, 2019

Abstract

This paper examines the relationship between product innovation and the success of price collusion using novel laboratory experiments. Average market prices in low innovation experiments are significantly higher than those in high innovation, but otherwise identical experiments. This price difference is attributed to low innovation experimental subjects' greater common market experience. The data illustrate how collusion can be perceived as the "only way to make it" in low innovation markets where product innovation is not a viable strategy for increasing profits. They suggest that product homogeneity can be a proximate cause, and product innovation an ultimate cause, of collusion.

Keywords: Innovation, Collusion, Antitrust, Experimental Economics

JEL Classification: L410, L100, O330, C920

Suggested Citation

Smyth, Andrew, An Experiment on Innovation and Collusion (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3012572 or http://dx.doi.org/10.2139/ssrn.3012572

Andrew Smyth (Contact Author)

Boise State University - Department of Economics ( email )

United States

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