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Robert Feinberg and Christopher Snyder
''Collusion with secret price cuts: an experimental investigation''
( 2002, Vol. 3 No.6 )
Theoretical work starting with Stigler (1964) suggests that collusion may be difficult to sustain in a repeated game with secret price cuts and demand uncertainty. Compared to equilibria in games of perfect information, trigger-strategy equilibria in this context result in lower payoffs because punishments occur along the equilibrium path. We tested the theory in a series of economic experiments. Consistent with the theory, treatments with imperfect information were less collusive than treatments with perfect information. However, in the imperfect-information treatments, players seemed to settle on the static Nash outcome rather than using trigger strategies. Players did resort to punishments for undercutting in perfect-information treatments, and this sometimes led to successful collusion afterward.
JEL: C9 - Design of Experiments: General
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Feb 02 2002 Manuscript Accepted : Mar 28 2002

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