Explicit vs. tacit collusion: the impact of communication in oligopoly experiments
Fonseca, Miguel A.
European Economic Review
We explore the difference between explicit and tacit collusion by investigating the impact communication has in experimental markets. For Bertrand oligopolies with various numbers of firms, we compare pricing behavior with and without the possibility to communicate among firms. We find strong evidence that talking helps to obtain higher pro fits for any number of firms, however, the gain from communicating is nonmonotonic in the number of firms, with medium-sized industries having the largest additional profi t from talking. We also find that industries continue to collude successfully after communication is disabled. Communication supports firms in coordinating on collusive pricing schemes, and it is also used for conflict mediation.
Financial support from Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged
Pre-print draft published as working paper by Düsseldorf Institute for Competition Economics (DICE). NOTICE: this is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, Elsevier, vol. 56(8), 2012, DOI: 10.1016/j.euroecorev.2012.09.002
Vol. 56, pp. 1759 - 1772