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The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result.
Numerous studies investigate which sanctioning institutions prevent cartel formation but little is known as to how these sanctions work. We contribute to understanding the inner workings of cartels by studying experimentally the effect of sanctioning institutions on firms’ communication. Using machine learning to organize the chat communication into topics, we find that firms are significantly less likely to communicate explicitly about price fixing when sanctioning institutions are present. At the same time, average prices are lower when communication is less explicit. A mediation analysis suggests that sanctions are effective in hindering cartel formation not only because they introduce a risk of being fined but also by reducing the prevalence of explicit price communication.
This paper sheds new light on the role of communication for cartel formation. Using machine learning to evaluate free-form chat communication among firms in a laboratory experiment, we identify typical communication patterns for both explicit cartel formation and indirect attempts to collude tacitly. We document that firms are less likely to communicate explicitly about price fixing and more likely to use indirect messages when sanctioning institutions are present. This effect of sanctions on communication reinforces the direct cartel-deterring effect of sanctions as collusion is more difficult to reach and sustain without an explicit agreement. Indirect messages have no, or even a negative, effect on prices.
While the economic harm of cartels is caused by their price-increasing effect, sanctioning by courts rather targets at the underlying process of firms reaching a price-fixing agreement. This paper provides experimental evidence on the question whether such sanctioning meets the economic target, i.e., whether evidence of a collusive meeting of the firms and of the content of their communication reliably predicts subsequent prices. We find that already the mere mutual agreement to meet predicts a strong increase in prices. Conversely, express distancing from communication completely nullifies its otherwise price-increasing effect. Using machine learning, we show that communication only increases prices if it is very explicit about how the cartel plans to behave.
The present paper proposes a novel approach for equilibrium selection in the infinitely repeated prisoner’s dilemma where players can communicate before choosing their strategies. This approach yields a critical discount factor that makes different predictions for cooperation than the usually considered sub-game perfect or risk dominance critical discount factors. In laboratory experiments, we find that our factor is useful for predicting cooperation. For payoff changes where the usually considered factors and our factor make different predictions, the observed cooperation is consistent with the predictions based on our factor.
This paper develops a spatial model to analyze the stability of a market sharing agreement between two firms. We find that the stability of the cartel depends on the relative market size of each firm. Collusion is not attractive for firms with a small home market, but the incentive for collusion increases when the firm’s home market is getting larger relative to the home market of the competitor. The highest stability of a cartel and additionally the highest social welfare is found when regions are symmetric. Further we can show that a monetary transfer can stabilize the market sharing agreement.
In this paper we develop a spatial Cournot trade model with two unequally sized countries, using the geographical interpretation of the Hotelling line. We analyze the trade and welfare effects of international trade between these two countries. The welfare analysis indicates that in this framework the large country benefits from free trade and the small country may be hurt by opening to trade. This finding is contrary to the results of Shachmurove and Spiegel (1995) as well as Tharakan and Thisse (2002), who use related models to analyze size effects in international trade, where the small country usually gains from trade and the large country may lose.
This paper develops the incentives to collude in a model with spatially separated markets and quantity setting firms. We find that increases in transportation costs stabilize the collusive agreement. We also show that, the higher the demand in both markets the less likely will collusion be sustained. Gross and Holahan (2003) use a similar model with price setting firms, we compare their results with ours to analyze the impact of the mode of competition on sustainability of collusion. Further we analyze the impact of collusion on social welfare and find that collusion may be welfare enhancing.
High growth firms (HGFs) are important for job creation and considered to be precursors of economic growth. We investigate how formal institutions, like product- and labor-market regulations, as well as the quality of regional governments that implement these regulations, affect HGF development across European regions. Using data from Eurostat, OECD, WEF, and Gothenburg University, we show that both regulatory stringency and the quality of the regional government influence the regional shares of HGFs. More importantly, we find that the effect of labor- and product-market regulations ultimately depends on the quality of regional governments: in regions with high quality of government, the share of HGFs is neither affected by the level of product market regulation, nor by more or less flexibility in hiring and firing practices. Our findings contribute to the debate on the effects of regulations by showing that regulations are not, per se, “good, bad, and ugly”, rather their impact depends on the efficiency of regional governments. Our paper offers important building blocks to develop tailored policy measures that may influence the development of HGFs in a region.
We investigate how inviting students to set task-based goals affects usage of an online learning platform and course performance. We design and implement a randomized field experiment in a large mandatory economics course with blended learning elements. The low-cost treatment induces students to use the online learning system more often, more intensively, and to begin earlier with exam preparation. Treated students perform better in the course than the control group: they are 18.8% (0.20 SD) more likely to pass the exam and earn 6.7% (0.19 SD) more points on the exam. There is no evidence that treated students spend significantly more time, rather they tend to shift to more productive learning methods. The heterogeneity analysis suggests that higher treatment effects are associated with higher levels of behavioral bias but also with poor early course behavior.