Cost Information Alters “Competitive” Pricing: an Experimental Investigation about the Role of Dispersion of Accurate Cost Information

B. Dierynck and Filip Roodhooft

Vlerick Leuven Gent Management School Working Paper Series from Vlerick Leuven Gent Management School

Abstract: This study investigates the role of internal cost information for initiating and sustaining tacit collusion. Relying on the importance of cost information for setting prices, we predict that internal cost information serves as a focal point for price setting. Relying on the importance of common focal points for initiating and sustaining tacit collusion, we expect that the role of collusion-facilitating factors such as increased monitoring and common market history is moderated by the dispersion of accurate cost information in the market. Specifically, we expect that the influence of collusion-facilitating factors on firm profits will be higher if all firms in a market rely on accurate cost information (i.e. full dispersion) compared to the situation in which not all firms in the market rely on accurate cost information (i.e. partial dispersion). The results of an experiment in a differentiated price setting duopoly are consistent with our hypotheses. By illuminating the role of cost information for initiating and sustaining tacit collusion, this study emphasizes the importance of accurate cost information and common internal focal points for price coordination. Our results can also explain the inconsistent findings about the influence of competition on the accuracy of the cost system and have interesting implications for the design of competition policy.

Pages: pages
Date: 2011-09-10
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.vlerick.com/en/17064-VLK/version/defaul ... vlgms-wp-2011-12.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.vlerick.com/en/17064-VLK/version/default/part/AttachmentData/data/vlgms-wp-2011-12.pdf [301 Moved Permanently]--> https://www.vlerick.com/en/17064-VLK/version/default/part/AttachmentData/data/vlgms-wp-2011-12.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:vlg:vlgwps:2011-12

Access Statistics for this paper

More papers in Vlerick Leuven Gent Management School Working Paper Series from Vlerick Leuven Gent Management School Contact information at EDIRC.
Bibliographic data for series maintained by Isabelle Vandenbroere ().