Communication, Renegotiation, and the Scope for Collusion

57 Pages Posted: 8 Nov 2009 Last revised: 13 Nov 2009

See all articles by David J. Cooper

David J. Cooper

Case Western Reserve University - Department of Economics

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

Date Written: November 7, 2009

Abstract

We use experiments to analyze what type of communication is most effective in achieving cooperation in a simple collusion game. Consistent with the existing literature on communication and collusion, even minimal communication leads to a short run increase in collusion. However, in a limited message-space treatment where subjects cannot communicate contingent strategies, this initial burst of collusion rapidly collapses. When unlimited pre-game communication is allowed via a chat window, an initial decline in collusion is reversed over time. Content analysis is used to identify multiple channels by which communication improves collusion in this setting. Explicit threats to punish cheating prove to be by far the most important factor to successfully establish collusion, consistent with the existing theory of collusion. However, collusion is even more likely when we allow for renegotiation, contrary to standard theories of renegotiation. What appears critical for the success of collusion with renegotiation is that cheaters are often admonished in strong terms. Allowing renegotiation therefore appears to increase collusion by allowing for an inexpensive and highly effective form of punishment.

Keywords: Collusion, communication, renegotiation, experiments, repeated games, trust

JEL Classification: C72, C73, C92, D43, L13, L41

Suggested Citation

Cooper, David Jacob and Kuhn, Kai-Uwe, Communication, Renegotiation, and the Scope for Collusion (November 7, 2009). Available at SSRN: https://ssrn.com/abstract=1501689 or http://dx.doi.org/10.2139/ssrn.1501689

David Jacob Cooper

Case Western Reserve University - Department of Economics ( email )

Weatherhead School of Management 10900 Euclid Avenue
Cleveland, OH 44106
United States
216-368-4294 (Phone)

Kai-Uwe Kuhn (Contact Author)

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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