Friday, April 19, 2013
Posted by D. Daniel Sokol
Catherine Roux (University of St.Gallen) and Christian Thoni (University of Lausanne) have an interesting paper on Collusion Among Many Firms: The Disciplinary Power of Targeted Punishment. Recommended.
ABSTRACT: We explore targeted punishment as an explanation for collusion among many rms. In a series of Cournot oligopoly experiments with various numbers of firms, we compare production decisions with and without the possibility to target punishment at specific market participants. We find strong evidence that targeted punishment enables firms to establish and maintain collusion. More so, we find that the collusive effect of targeted punishment is even stronger in markets with more competitors, suggesting a reversal of the conventional wisdom that collusion is easier the fewer the firms.