Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies

Ola Andersson and Erik Wengström

No 2004:14, Working Papers from Lund University, Department of Economics

Abstract: Using Bertrand supergames with communication, we study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero-cost, low-cost and high-cost. We find that increasing the cost of communication results in a significantly higher price level. Moreover, making communication costly decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. By letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices, McCutcheon (1997) presents an interesting application to antitrust policy. The experimental results support her theoretical prediction that antitrust laws might work in the interest of firms.

Keywords: Antitrust Policy; Experiments; Collusion; Costly Communication; Weakly Renegotiation-proof Equilibria (search for similar items in EconPapers)
JEL-codes: C90 D43 L40 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2004-04-13, Revised 2004-09-13
New Economics Papers: this item is included in nep-com, nep-exp, nep-ind, nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in The Scandinavian Journal of Economics, 2007, pages 321-339.

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Journal Article: Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies* (2007)
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