CeDEx workshop - Ori Weisel (Max Planck Institute of Economics, Jena)

The effect of heterogeneity and transparency with respect to incentive structures on tacit collusion in a repeated price competition between teams

Abstract:

We study experimental Bertrand duopoly markets where each competitor is modeled as a three-player team. Each player states a bid and the team with the lower total bid wins the competition. There are two incentive structures by which profits are divided among members of the winning team: In consortia each member receives her own bid; in partnerships each member receives the average bid. We vary market composition (two partnerships; two consortia; one partnership and one consortium) and transparency with respect to the incentive structure of the other team. In homogeneous markets we find that partnerships yield lower prices than consortia. Prices in heterogeneous markets are sensitive to transparency: they are low with transparency, but high without transparency. This last result suggests that subjects in consortia are shifting (some of) their attention to the inter-group conflict when incentive structures are transparent, but remain focused on the intra-group conflict when they are not