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Citation: Harrington Jr, J. E., Hernán-González, R., & Kujal, P. (2016). The relative efficacy of price announcements and express communication for collusion: Experimental findings. Journal of Economic Behavior & Organization, 128, 251-264.

https://doi.org/10.1016/j.jebo.2016.05.014

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Abstract: Successful collusion requires firms to coordinate their behavior. This study performs an experimental analysis to shed light on what modes of communications are able to produce and sustain collusion and how the efficacy of communication depends on the number of firms and firm heterogeneity. 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. By analyzing chat, we are also able to learn how they are coordinating which helps explain why collusion with price announcements is relatively ineffective when firms are different.