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Imperfect Tacit Collusion and Asymmetric Price Transmission

Muhammed Bulutay (), David Hales, Patrick Julius and Weiwei Tasch

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: We investigate the role tacit collusion plays in Asymmetric Price Transmission (APT), the tendency of prices to respond more rapidly to positive than to negative cost shocks. Using a laboratory experiment that isolates the effects of tacit collusion, we observe APT pricing behavior in markets with 3, 4, 6, and 10 sellers, but not in duopolies. Furthermore, we find that sellers accurately forecast others’ prices, but nevertheless consistently set their own prices above the profit-maximizing response, particularly in the periods immediately following negative shocks. Overall, our findings support theories in which tacit collusion plays a central role in APT.

Keywords: Asymmetric Price Transmission; Tacit Collusion; Oligopolistic Competition; Market Power; Rockets and Feathers (search for similar items in EconPapers)
JEL-codes: C72 C73 C92 D43 L13 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com, nep-exp, nep-gth, nep-ind and nep-mon
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