Concerns about rising prices may raise prices

Steffen Huck, Hans-Theo Normann and Fidel Petros

Discussion Papers, Research Unit: Market Behavior from WZB Berlin Social Science Center

Abstract: We use a laboratory experiment to investigate whether statements from a governmental institution expressing concerns about price increases trigger such increases by facilitating tacit collusion. Such statements on market conduct are disclosed after an exogenous and unexpected upward cost shock. The two potential channels affecting tacit collusion work through (i) a reduction of strategic uncertainty and (ii) an inducement of correlated beliefs. We find that issued statements of concern become a self-fulfilling prophecy, triggering price increases, and that a reduction in strategic uncertainty drives this adverse effect. Our results suggest that institutions should refrain from publishing such statements of concern

Keywords: beliefs; coordination device; strategic uncertainty; tacit collusion (search for similar items in EconPapers)
JEL-codes: C72 C91 L41 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-com, nep-exp, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmbh:301157

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