Capacity precommitment, communication, and collusive pricing: Theoretical benchmark and experimental evidence

Werner Güth, Manfred Stadler and Alexandra Zaby

No 114, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: In a capacity-then-price-setting game we experimentally identify capacity precommitment, the possibility to communicate before price choices, and prior competition experience as crucial factors for collusive pricing. The theoretical analysis determines the capacity thresholds above which firms have an incentive to coordinate on higher prices. The experimental data reveals that such intra-play communication after capacity but before price choices has a collusive effect only for capacity levels exceeding these thresholds. Subjects with high capacities generally choose higher prices when they have the possibility to communicate. Asymmetry in capacity choices decreases the truthfulness of price messages as well as the probability to coordinate on the same price.

Keywords: capacity-then-price competition; excessive capacities; cheap talk; intra-play communication; collusion; experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C91 L1 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-com, nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Capacity precommitment, communication, and collusive pricing: theoretical benchmark and experimental evidence (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:114

DOI: 10.15496/publikation-26461

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