Market Concentration and Incentives to Collude in Cournot Oligopoly Experiments

Nobuyuki Hanaki and Aidas Masiliūnas

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: Multiple Cournot oligopoly experiments found more collusive behavior in markets with fewer firms (Huck et al., 2004; Hostmann et al., 2018). This result could be explained by a higher difficulty to coordinate or by lower incentives to collude in markets with more firms. We show that the Quantal Response Equilibrium can explain how the change in incentives alone could result in more collusive output in smaller markets. We propose a new method to manipulate the group size while keeping constant the locations of key outcomes, payoffs at these outcomes and the incentives to collude. Experiments using this normalized payoff function find that the number of firms has no direct effect on the average output or profit. We conclude that higher rates of aggregate collusion in markets with fewer firms are driven by the changes in incentives or focality rather than purely the number of firms. These findings imply that antitrust policies aimed at preventing collusion should focus on incentives rather than on the market concentration.

Date: 2021-04
New Economics Papers: this item is included in nep-com, nep-exp, nep-gth and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2021/DP1131.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:1131

Access Statistics for this paper

More papers in ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka Contact information at EDIRC.
Bibliographic data for series maintained by Librarian ().