Goppelsroeder, Marie (2009): Entry in Collusive Markets: An Experimental Study.
Download (1MB) | Preview
In this paper we present an experiment in which we test the effects of sequential entry on the stability of collusion in oligopoly markets. Theoretical as well as experimental research suggests that a larger number of firms in an industry makes collusion harder to sustain. In this study, we explore to what extent collusion can be upheld with exogenous entry when groups start off small and when it is common knowledge that the entrant is informed about the history of her group prior to entry. We find that collusion is indeed easier to sustain in the latter case than in groups starting large. We conjecture that an implicit coordination problem is resolved more easily in a smaller group and that coordination, once it has been established, can be transferred to the enlarged group by means of a common code of conduct. Moreover, the results suggest that entrants emulate the behavior of their group upon entry.
|Item Type:||MPRA Paper|
|Original Title:||Entry in Collusive Markets: An Experimental Study|
|Keywords:||Collusion; Entry; Experiments|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games
L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General
|Depositing User:||Marie Goppelsroeder|
|Date Deposited:||19. Apr 2009 04:37|
|Last Modified:||20. Feb 2013 07:21|
Abbink, K. and Brandts, J. (2009), Collusion in growing and shrinking Markets: Empirical Evidence from Experimental Duopolies , in: Hinloopen, J. and Normann, H.-T.(eds.), Experiments and Competition Policy, Cambridge, Cambridge University Press, 34-60.
Bertrand, J. L.F. (1883). Theorie des Richesses: revue de Theories mathematiques de la richesse sociale par Leon Walras et Recherches sur les principes mathematiques de la theorie des richesses par Augustin Cournot, Journal des Savants.
Bain, J. (1956), Barriers to New Competition, Cambridge, MA: Harvard University Press.
Cournot, A. (1838), Researches into the Mathematical Principles of the Theory of Wealth. In Encyclopdia Britannica. Retrieved October 20, 2008, from Encyclopdia Britannica Online: http://www.britannica.com/EBchecked/topic/727395/Researches-into-the-Mathematical-Principles-of-the-Theory-of-Wealth
Cubbin, J. and Domberger, S. (1988), Advertising and Post-Entry Oligopoly Behavior, Journal of Industrial Economics, 37, 123-140.
Dolbear, F.T., Lave, L. B., Bowman, G., Liebermann, A, Prescott, E., Rueter, E., Sherman, R. (1968), Collusion in Oligopoly: An Experiment on the Effect of Numbers and Information, Quarterly Journal of Economics, 82, 240-259.
Dufwenberg, M. and Gneezy, U. (2000), Price Competition and Market Concentration; An experimental Study, International Journal of Industrial Organization, 18, 7-22.
Fischbacher, U. (2007), z-Tree: Zurich Toolbox for Ready-made Economic Experiments, Experimental Economics, 10, 171-178.
Fouraker, L. and Siegel, S. (1963), Bargaining Behaviour, McGraw-Hill, New York.
Geroski, P. (1995), What do we know about entry?, International Journal of Industrial Organization, 13, 421-440.
Geroski, P. (1991), Entry and Intra-Industry Mobility in the UK, Oxford Bulletin of Economics and Statistics, 53, (4), 341-59.
Green, E. J. and Porter, R. H. (1984), Noncooperative Collusion under Imperfect Price Formation, Econometrica, 52, 87-100.
Guerek, O., Irlenbusch, B. and Rockenbach, B. (2006), The competitive advantage of sanctioning institutions, Science, 5770, 108-111.
Gupta, B. (1997), Collusion in the Indian Tea Industry in the Great Depression: An Analysis of Panel Data, Explorations in Economic History, 34, 155-173.
Huck, S., Konrad, K. A., Mueller, W. and Normann, H.-T. (2007), The Merger Paradox and why Aspiration Levels let it fail in the Laboratory, The Economic Journal, 117, 1073-1095.
Huck, S., Normann, H.-T. and Oechssler, J. (2004), Two are few and four are many: number effects in experimental oligopolies, Journal of Economic Behavior and Organization, 53, 435-446.
Huck, S., Normann, H.-T. and Oechssler, J. (1999), Learning in Cournot oligopoly: An experiment, Economic Journal, 1999,109, 80-95.
Offerman, T., Potters, J. and Sonnemans, J. (2002), Imitation and Belief Learning in an Oligopoly Experiment, Review of Economic Studies, 69, 973-997.
Levenstein, M.C. (1996), Do Price Wars Facilitate Collusion? A Study of Bromine Cartel before World War I, Explorations in Economic History, 33, 107-137.
Levenstein, M.C. and Suslow, V.Y. (2004), Studies of Cartel Stability: A Comparison of Methodological Approaches, in: Grossman, P. Z. (ed.), How Cartels Endure and How They Fail, Edward Elgar: London, 9-52.
Porter, R. H. (1985), On the Incidence and Duration of Price Wars, Journal of Industrial Economics, 33, 415-426.
Robinson, W.T. (1988), Marketing Mix Reactions to Entry, Marketing Science, 7, 368-385.
Sonnemans, J., Schram, A. and Offerman, T. (1999), Strategic Behavior in Public Good Games: When Partners Drift Apart, Economics Letters, 62, 35-41.
Tirole, J. (1988), The Theory of Industrial Organization, Cambridge: MIT Press.
Vasconcelos, H. (2004), Entry Effects on Cartel Stability and the Joint Executive Committee, Review of Industrial Organization, 24, 219-241.
Weber, R. (2006), Managing Growth to achieve efficient coordination in large Groups, American Economic Review, 96, 114-126.
Yip, G. S. (1982). Barriers to entry: A corporate strategy perspective, Lexington, MA: Lexington Books.