The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings

44 Pages Posted: 26 Nov 2014

See all articles by Joseph E. Harrington Jr

Joseph E. Harrington Jr

University of Pennsylvania

Roberto Hernan Gonzalez

Université de Bourgogne - Burgundy School of Business; University of Granada

Praveen Kujal

Middlesex University

Date Written: June 9, 2014

Abstract

Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communication are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms.

Suggested Citation

Harrington Jr, Joseph E. and Hernan Gonzalez, Roberto and Kujal, Praveen, The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2530568 or http://dx.doi.org/10.2139/ssrn.2530568

Joseph E. Harrington Jr (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19102
Philadelphia, PA 19104

Roberto Hernan Gonzalez

Université de Bourgogne - Burgundy School of Business ( email )

29 rue Sambin
Dijon, 21006
France

University of Granada ( email )

C/Rector López Argueta S/N
Granada, Granada 18071
Spain

Praveen Kujal

Middlesex University ( email )

The Burroughs
London, NW4 4BT
United Kingdom

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