Communication, Renegotiation, and the Scope for Collusion

60 Pages Posted: 11 Jan 2010

See all articles by David J. Cooper

David J. Cooper

Florida State University - Department of Economics; University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS)

Kai-Uwe Kuhn

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

Multiple version iconThere are 2 versions of this paper

Date Written: November 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, experiments, guilt aversion, renegotiation, trust

JEL Classification: C72, C73, C92, D03, D43, L13, L41

Suggested Citation

Cooper, David J. and Kuhn, Kai-Uwe, Communication, Renegotiation, and the Scope for Collusion (November 2009). CEPR Discussion Paper No. DP7563, Available at SSRN: https://ssrn.com/abstract=1533168

David J. Cooper (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom

Kai-Uwe Kuhn

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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