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Do antitrust laws facilitate collusion? Experimental evidence on costly communication in duopolies

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Author

Summary, in English

Bertrand supergames with non- binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero- cost, low- cost and high- cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. McCutcheon ( 1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support the mechanism of McCutcheon's ( 1997) argument, the findings point in the direction of her prediction that antitrust laws might work in the interest of firms.

Publishing year

2007

Language

English

Pages

321-339

Publication/Series

Scandinavian Journal of Economics

Volume

109

Issue

2

Document type

Journal article

Publisher

Wiley-Blackwell

Topic

  • Economics

Keywords

  • renegotiation-proof equilibria
  • weakly
  • costly communication
  • collusion
  • antitrust policy
  • experiments

Status

Published

ISBN/ISSN/Other

  • ISSN: 1467-9442