Frequency of interaction, communication and collusion: an experiment
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The frequency of interaction facilitates collusion by reducing gains from defection. Theory has shown that under imperfect monitoring flexibility may hinder cooperation by inducing punishment after too few noisy signals, making collusion impossible in many environments (Sannikov and Skrzypacz in Am Econ Rev 97:1794–1823, 2007). The interplay of these forces should generate an inverse U-shaped effect of flexibility on collusion. We test for the first time these theoretical predictions—central to antitrust policy—in a laboratory experiment featuring an indefinitely repeated Cournot duopoly, with different degrees of flexibility. Results turn out to depend crucially on whether subjects can communicate with each other at the beginning of a supergame (explicit collusion) or not (tacit collusion). Without communication, the incidence of collusion is low throughout and not significantly related to flexibility; when subjects are allowed to communicate, collusion is more common throughout and significantly more frequent in the treatment with intermediate flexibility than in the treatments with low or high flexibility.
KeywordsCartels Cournot oligopoly Flexibility Imperfect monitoring Repeated games
JEL ClassificationC73 C92 D43 L13 L14
We wish to thank the editor, the associate editor and two anonymous reviewers for their helpful comments and suggestions. We also thank Andrzej Skrzypacz for his precious advice, and Charles Angelucci, Jeff Butler, Gabriele Camera, Martin Dufwenberg, Christoph Engel, Ernst Fehr, Tobias Klein, Wieland Mueller, Karl Schlag, Jean Robert Tyran and participants at the European ESA Meeting in Innsbruck, the M-BEES Workshop in Maastricht, the Industrial Organization Workshop in Otranto, the CRESSE conference in Rhodes, the EIEF-Bologna-Bocconi IO Workshop, the ESRC London Experimental Workshop (LEW), the Amsterdam Symposium on Behavioral and Experimental Economics (ABEE) and seminars at Humboldt University Berlin, the Stockholm School of Economics, Erasmus University Rotterdam, Tilburg University, University of California Santa Cruz, IFN Stockholm, the MPI for Collective Goods in Bonn, the Technische Universität Berlin, the University of Vienna and the University of Aix-Marseille for valuable comments.
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