Demand Shocks, Capacity Coordination and Industry Performance: Lessons from Economic Laboratory

Kyle Hampton and Katerina Sherstyuk

No 201023, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: Antitrust exemptions granted to businesses under extenuating circumstances are often justified by the argument that they benefit the public by helping producers adjust to otherwise difficult economic circumstances. Such exemptions may allow firms to coordinate their capacities, as was the case of post-September 11, 2001 antitrust immunity granted to Aloha and Hawaiian Airlines. We conduct economic laboratory experiments to determine the effects of explicit capacity coordination on oligopoly firms' abilities to adjust to negative demand shocks and on industry prices. The results suggest that capacity coordination speeds the adjustment process, but also has a clear pro-collusive effect on firm behavior.

Keywords: economic experiments; demand shocks; capacity coordination; collusion (search for similar items in EconPapers)
JEL-codes: C92 D44 L41 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2010-12-15
New Economics Papers: this item is included in nep-bec, nep-com and nep-exp
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Citations: View citations in EconPapers (1)

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http://www.economics.hawaii.edu/research/workingpapers/WP_10-23.pdf First version, 2010 (application/pdf)

Related works:
Journal Article: Demand shocks, capacity coordination, and industry performance: lessons from an economic laboratory (2012)
Working Paper: Demand Shocks, Capacity Coordination and Industry Performance: Lessons from Economic Laboratory (2010)
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