EconPapers    
Economics at your fingertips  
 

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

Werner Güth, Manfred Stadler and Alexandra Zaby

No 114, University of Tuebingen Working Papers in Economics and Finance from University of Tuebingen, Faculty of Economics and Social Sciences

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)
New Economics Papers: this item is included in nep-com, nep-exp and nep-gth
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/190813/1/1043349227.pdf (application/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:zbw:tuewef:114

Access Statistics for this paper

More papers in University of Tuebingen Working Papers in Economics and Finance from University of Tuebingen, Faculty of Economics and Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2019-02-02
Handle: RePEc:zbw:tuewef:114