Collusion with secret price cuts: an experimental investigation

Robert Feinberg and Christopher Snyder

Economics Bulletin, 2002, vol. 3, issue 6, 1-11

Abstract: Theoretical work starting with Stigler (1964) suggests that collusion may be difficult to sustain in a repeated game with secret price cuts and demand uncertainty. Compared to equilibria in games of perfect information, trigger-strategy equilibria in this context result in lower payoffs because punishments occur along the equilibrium path. We tested the theory in a series of economic experiments. Consistent with the theory, treatments with imperfect information were less collusive than treatments with perfect information. However, in the imperfect-information treatments, players seemed to settle on the static Nash outcome rather than using trigger strategies. Players did resort to punishments for undercutting in perfect-information treatments, and this sometimes led to successful collusion afterward.

JEL-codes: C9 L1 (search for similar items in EconPapers)
Date: 2002-03-28
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Citations: View citations in EconPapers (24)

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