Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57493
Authors: 
Engel, Christoph
Zhurakhovska, Lilia
Year of Publication: 
2011
Series/Report no.: 
Preprints of the Max Planck Institute for Research on Collective Goods 2011,1
Abstract: 
From the perspective of competitors, competition may be modeled as a prisoner's dilemma. Setting the monopoly price is cooperation, undercutting is defection. Jointly, competitors are better off if both are faithful to a cartel. Individually, profit is highest if only the competitor(s) is (are) loyal to the cartel. Yet collusion inflicts harm on the opposite market side and, through the deadweight loss, on society at large. Moreover, almost all legal orders combat cartels. Through the threat with antitrust intervention, gains from cooperation are uncertain. In the field, both qualifications combine. To prevent participants from using their world knowledge about antitrust, we experimentally test them on a neutral matrix game, with either a negative externality on a third participant, uncertainty about gains from cooperation, or both. Uncertainty dampens cooperation, though only slightly. Surprisingly, externalities are immaterial. If we control for beliefs, they even foster cooperation. If we combine both qualifications and do not control for beliefs, we only find an uncertainty effect. If we add beliefs as a control variable, we only find that externalities enhance cooperation, even if gains from collusion are uncertain. Hence the fact that the dilemma of oligopolists is socially embedded matters less than one might have expected.
Subjects: 
oligopoly
collusion
experiment
uncertainty
negative externalities
prisoner's dilemma
JEL: 
D43
K21
L13
L41
C72
D81
K42
C91
D62
D03
H23
D22
Document Type: 
Working Paper

Files in This Item:
File
Size
520.53 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.