Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies

Ola Andersson and Erik Wengström ()

No 2004:14, Working Papers from Lund University, Department of Economics

Abstract: Using Bertrand supergames with communication, we 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. We find that increasing the cost of communication results in a significantly higher price level. Moreover, making communication costly decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. By letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices, McCutcheon (1997) presents an interesting application to antitrust policy. The experimental results support her theoretical prediction that antitrust laws might work in the interest of firms.

Keywords: Antitrust Policy; Experiments; Collusion; Costly Communication; Weakly Renegotiation-proof Equilibria (search for similar items in EconPapers)
JEL-codes: C90 D43 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-exp, nep-ind, nep-law and nep-mic
Date: 2004-04-13, Revised 2004-09-13
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Forthcoming in The Scandinavian Journal of Economics.

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Related works:
Journal Article: Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:lunewp:2004_014

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