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Choosing between explicit cartel formation and tacit collusion – An experiment

Maximilian Andres (), Lisa Bruttel () and Jana Friedrichsen ()
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Maximilian Andres: University of Potsdam

No 19, CEPA Discussion Papers from Center for Economic Policy Analysis

Abstract: Numerous studies investigate which sanctioning institutions prevent cartel formation but little is known as to how these sanctions work. We contribute to understanding the inner workings of cartels by studying experimentally the effect of sanctioning institutions on firms’ communication. Using machine learning to organize the chat communication into topics, we find that firms are significantly less likely to communicate explicitly about price fixing when sanctioning institutions are present. At the same time, average prices are lower when communication is less explicit. A mediation analysis suggests that sanctions are effective in hindering cartel formation not only because they introduce a risk of being fined but also by reducing the prevalence of explicit price communication.

Keywords: cartel; collusion; communication; machine learning; experiment (search for similar items in EconPapers)
JEL-codes: C92 D43 L41 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-big, nep-cmp, nep-com, nep-exp and nep-law
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