Entry in Collusive Markets: An Experimental Study

Marie Goppelsroeder ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we present an experiment in which we test the effects of sequential entry on the stability of collusion in oligopoly markets. Theoretical as well as experimental research suggests that a larger number of firms in an industry makes collusion harder to sustain. In this study, we explore to what extent collusion can be upheld with exogenous entry when groups start off small and when it is common knowledge that the entrant is informed about the history of her group prior to entry. We find that collusion is indeed easier to sustain in the latter case than in groups starting large. We conjecture that an implicit coordination problem is resolved more easily in a smaller group and that coordination, once it has been established, can be transferred to the enlarged group by means of a common code of conduct. Moreover, the results suggest that entrants emulate the behavior of their group upon entry.

Keywords: Collusion; Entry; Experiments (search for similar items in EconPapers)
JEL-codes: C72 C92 L13 L40 (search for similar items in EconPapers)
Date: 2009-03-24
New Economics Papers: this item is included in nep-com, nep-exp, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:14707

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