Capacity precommitment, communication, and collusive pricing: theoretical benchmark and experimental evidence

Werner Güth (), Manfred Stadler and Alexandra Zaby
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Werner Güth: Libera Università Internazionale degli Studi Sociali (LUISS)

International Journal of Game Theory, 2020, vol. 49, issue 2, No 6, 495-524

Abstract: Abstract We use a first-capacity-then-price-setting game as a theoretical benchmark for an experimental study which identifies capacity precommitment, intra-play communication, and prior experience as crucial factors for collusive pricing. The theoretical model determines capacity thresholds above which firms have an incentive to coordinate on higher than equilibrium prices. The experimental data confirm that intra-play communication after capacity but before price choices fosters collusion only for capacity levels exceeding these thresholds. If communication is abandoned, prices nevertheless remain high. Asymmetry in capacities decreases the reliability of price messages as well as the probability to coordinate on equal prices.

Keywords: Capacity-price competition; Intra-play communication; Collusion; Experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C91 L1 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00182-020-00718-0

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