The relative efficacy of price announcements and express communication for collusion: experimental findings

This study conducts experiments to determine the modes of communication that are able to produce and sustain collusion and how the efficacy of communication depends on market structure. Two communication treatments are considered: non-binding price announcements and unrestricted written communication. We find that price announcements are conducive to coordinating on a high price but only under duopoly and when firms are symmetric. The standard experimental finding that collusion without communication is rare when there are more than two firms is shown to be robust to allowing firms to make price announcements. When firms are asymmetric, price announcements do result in higher prices but there is little evidence that firms are coordinating their behavior. When firms are allowed to engage in unrestricted written communication, coordination on high prices occurs for all market structures. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms

Stochastic Market Sharing, Partial Communication and Collusion

This paper analyzes the role of communication between firms in an infinitely repeated Bertrand game in which firms receive an imperfect private signal of a common value i.i.d. demand shock. It is shown that firms can use stochastic, inter-temporal market sharing as a perfect substitute for communication in low demand states. Therefore, partial communication in high demand states is sufficient to achieve the most collusive, full communication outcome. And partial communication in low demand state does not improve on the equilibrium without communication. Communication in high demand states allows firms to coordinate their pricing, choose the most efficient uninformed price and avoid price wars. I demonstrate that under some conditions consumers are better off with communication among colluding firms.Stochastic Market Sharing, Communication, Collusion, Competition Policy

Stochastic market sharing, partial communication and collusion

This paper analyzes the role of communication between firms in an infinitely repeated Bertrand game in which firms receive an imperfect private signal of a common value i.i.d. demand shock. It is shown that firms can use stochastic, inter-temporal market sharing as a perfect substitute for communication in low-demand states. Therefore, partial communication in high-demand states is sufficient to achieve the most collusive, full communication outcome. And partial communication in low-demand states does not improve on the equilibrium without communication. Communication in high-demand states allows firms to coordinate their pricing, choose the most efficient uninformed price and avoid price wars. I demonstrate that under some conditions consumers are better off with communication among colluding firms.Stochastic market sharing; communication; collusion; competition policy;

On the Use of Information in Repeated Insurance Markets

We analyze the use of information in a repeated oligopolistic insurance market. To sustain collusion, insurance companies might refrain from changing their pricing schedules even if new information about risks becomes available. We therefore provide an explanation for the existence of "unused observables" that is information whic

On the Use of Information in Repeated Insurance Markets

We analyze the use of information in a repeated oligopolistic insurance market. To sustain collusion, insurance companies might refrain from changing their pricing schedules even if new information about risks becomes available. We therefore provide an explanation for the existence of "unused observables" that is information whichrepeated games; insurance markets; oligopoly; unused observables

Tacit collusion in repeated auctions

"The authors study tacit collusion in repeated auctions in which bidders can only observe past winners and not their bids. They adopt a stringent interpretation of tacit collusion as collusion without communication about strategies that we model as a symmetry restriction on repeated game strategies: Strategies cannot discriminate among initially nameless bidders until they have become named through winning an auction. The authors obtain three classes of results: 1. Completely refraining from using names, i.e. strengthening the symmetry constraint, rules out collusion altogether, and even if naming is permitted, as per our definition of tacit collusion, the lack of communication limits collusive strategies and payoffs among impatient bidders. 2. If communication is allowed, there are sustained improvements over bid rotation and competitive bidding among patient bidders. 3. These gains extend to tacit collusion among patient bidders. However, whether tacit or not, collusion need not be efficient." (author's abstract)"Der Beitrag untersucht die Möglichkeiten von 'tacit collusion' (stillschweigender Kollusion) in wiederholten Auktionsspielen in welchen nur die vergangenen Gewinner nicht aber deren Gebote bekannt sind. Dabei wird 'tacit collusion' als kollusives Verhalten ohne Absprachen zwischen den Bietern interpretiert. In dem Artikel werden insbesondere auch vor dem Spiel getroffene Absprachen über Strategien ausgeschlossen. Das Fehlen solcher Absprachen wird durch Symmetrierestriktionen modelliert: Strategien können solange nicht zwischen anfangs 'namenlosen' Bietern unterscheiden, bis diese sich durch das Gewinnen einer Auktion von den anderen Bietern differenzieren. Es werden drei Arten von Ergebnissen hergeleitet: 1. Stärkt man die Symmetrierestriktionen und verlangt symmetrisches Verhalten in jeder Periode, so kann keine Kollusion auftretten. Aber auch weniger starke Symmetrierestriktionen, die prinzipiell eine endogene Rollenverteilung ermöglichen, schränken die möglichen Kollusionsgewinne bei ungeduldigen Bietern ein. 2. Erlaubt man vor dem Spiel getroffene Absprachen über die Strategiewahl, so können hinreichend geduldige Bieter unbegrenzt höhere Gewinne erhalten als die Gewinnne bei wiederholtem Konkurrenzverhalten oder bei einer einfachen Bieterrotation. 3. Dies gilt auch für Kollusion ohne Absprachen falls die Bieter hinreichend geduldig sind. Jedoch, ob mit oder ohne a-priori Absprachen, effiziente Kollusion kann selbst bei extrem geduldigen Bietern unmöglich sein." (Autorenreferat

A Neo-Chicago Approach to Concerted Action

In this article, I offer an approach to concerted action that builds on traditional Chicago School analyses of the issue, but adds a focus on the role of communication. Chicago scholars uniformly identify cartels as the primary target of antitrust enforcement. They have also established much of the framework within which courts and economists analyze concerted action. George Stigler’s seminal theory of oligopoly, which sought to identify the determinants of effective collusion, has spawned an enormous literature in game theory that models the pricing behavior of oligopolists. Richard Posner’s early analysis of tacit collusion - rivals’ coordination of noncompetitive pricing without express communication - extended Stigler’s analysis to the domain of law and policy. His approach to oligopoly pricing drew on economic theory and evidence both to define tacit collusion as concerted action and to identify structural and behavioral characteristics of markets that suggested its presence. I argue that Posner’s approach, refocused on the role of communication, provides the most promising way forward in the analysis of concerted action. After recounting the history of the Chicago School’s analysis of concerted action, I propose a modified definition of concerted action and suggest how the change might affect the search for instances of concerted action. I argue that Section 1 does not reach tacit collusion, but neither does it require a verbal agreement; instead, actions are concerted if rivals coordinate them in part by communicating their intentions. I argue that this focus on communicative concerted action, despite its departure from Posner’s legal position, is consistent with the Chicago tradition, particularly error cost analysis. Its neo-Chicago character lies in its reliance on the most recent economic literature on the role of communication in collusion. In the last part of the article, I examine a small but important subset of that literature: studies of how real-world cartels use communication and facilitating practices to achieve their aims. Based on these studies, I suggest how plaintiffs and enforcement agencies might discover concerted action by examining changing patterns in the use of facilitating practices

Tacit Collusion in Repeated Auctions

We study tacit collusion in repeated auctions in which bidders can only observe pastwinners and not their bids. We adopt a stringent interpretation of tacit collusion ascollusion without communication about strategies that we model as a symmetryrestriction on repeated game strategies: Strategies cannot discriminate among initiallynameless bidders until they have become named through winning an auction. We obtainthree classes of results: (1) Completely refraining from using names, i.e. strengtheningthe symmetry constraint, rules out collusion altogether, and even if naming is permitted,as per our definition of tacit collusion, the lack of communication limits collusivestrategies and payoffs among impatient bidders. (2) If communication is allowed, thereare sustained improvements over bid rotation and competitive bidding among patientbidders. (3) These gains extend to tacit collusion among patient bidders. However,whether tacit or not, collusion need not be efficient. ZUSAMMENFASSUNG - (Stillschweigende Kollusion in wiederholten Auktionen) Der Beitrag untersucht die Möglichkeiten von "tacit collusion" (stillschweigender Kollusion) in wiederholten Auktionsspielen in welchen nur die vergangenen Gewinner nicht aber deren Gebote bekannt sind. Dabei wird "tacit collusion" als kollusives Verhalten ohne Absprachen zwischen den Bietern interpretiert. In dem Artikel werden insbesondere auch vor dem Spiel getroffene Absprachen über Strategien ausgeschlossen. Das Fehlen solcher Absprachen wird durch Symmetrierestriktionen modelliert: Strategien können solange nicht zwischen anfangs "namenlosen" Bietern unterscheiden, bis diese sich durch das Gewinnen einer Auktion von den anderen Bietern differenzieren. Es werden drei Arten von Ergebnissen hergeleitet: (1) Stärkt man die Symmetrierestriktionen und verlangt symmetrisches Verhalten in jeder Periode, so kann keine Kollusion auftreten. Aber auch weniger starke Symmetrierestriktionen, die prinzipiell eine endogene Rollenverteilung ermöglichen, schränken die möglichen Kollusionsgewinne bei ungeduldigen Bietern ein. (2) Erlaubt man vor dem Spiel getroffene Absprachen über die Strategiewahl, so können hinreichend geduldige Bieter unbegrenzt höhere Gewinne erhalten als die Gewinne bei wiederholtem Konkurrenzverhalten oder bei einer einfachen Bieterrotation. (3) Dies gilt auch für Kollusion ohne Absprachen falls die Bieter hinreichend geduldig sind. Jedoch, ob mit oder ohne a-priori Absprachen, effiziente Kollusion kann selbst bei extrem geduldigen Bietern unmöglich sein.Tacit Collusion, Auctions, Supergames, Strategic Uncertainty, Language, Attainability

SUSTAINABLE AND UNCHALLENGED ALGORITHMIC TACIT COLLUSION

Algorithmic collusion has the potential to transform future markets, leading to higher prices and consumer harm. And yet, algorithmic collusion may remain undetected and unchallenged, in particular, when it is used to facilitate conscious parallelism. The risks posed by such undetected collusion have been debated within antitrust circles in Europe, the US, and beyond. Some economists, however, downplay algorithmic tacit collusion as unlikely, if not impossible. “Keep calm and carry on,” they argue, as future prices will remain competitive. This paper explores the rise of algorithmic tacit collusion and responds to those who downplay it, by pointing to new emerging evidence and the gap between law and this particular economic theory. We explain why algorithmic tacit collusion is not only possible but warrants the increasing concerns of many enforcers

The relative efficacy of price announcements and express communication for collusion: experimental findings

This study conducts experiments to determine the modes of communication that are able to produce and sustain collusion and how the efficacy of communication de- pends on market structure. Two communication treatments are considered: non-binding price announcements and unrestricted written communication. We find that price an- nouncements are conducive to coordinating on a high price but only under duopoly and when firms are symmetric. The standard experimental finding that collusion without com- munication is rare when there are more than two firms is shown to be robust to allowing firms to make price announcements. When firms are asymmetric, price announcements do result in higher prices but there is little evidence that firms are coordinating their behavior. When firms are allowed to engage in unrestricted written communication, co- ordination on high prices occurs for all market structures. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms