Monday, January 14, 2013
Posted by D. Daniel Sokol
Hans-Theo Normann, Jurgen Rosch, and Luis Manuel Schult (all DICE, University of Duessldorf) ask Do buyer groups facilitate collusion?
ABSTRACT: We explore whether buyer groups, in which firms legally purchase inputs jointly, facilitate collusion in the product market. In a repeated game, abandoning the buyer group altogether or excluding single firms from them constitute more severe credible threats, hence, in theory buyer groups facilitate collusion. We run several experimental treatments in a three-firm Cournot framework to test these predictions, and we also explore the impact communication has on buyer groups. The experimental results show that buyer groups lead to lower outputs when groups can exclude single firms. Communication is identified as a main factor causing collusive product markets.