Wednesday, July 15, 2009
Posted by D. Daniel Sokol
Lisa R. Anderson (Department of Economics, College of William and Mary), Beth A. Freeborn (Department of Economics, College of William and Mary), and Jason P. Hulbert (Department of Economics, College of William and Mary) explain Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment.
ABSTRACT: We investigate the relationship between collusive behavior in Bertrand oligopoly experiments and subject heterogeneity in risk preferences. We find that risk aversion is positively associated with tacit collusion when the goods are complements, but find no evidence of collusive behavior when the goods are substitutes. Furthermore, risk aversion is associated with lower prices with complement goods, but does not impact pricing behavior with substitute goods. In both treatments, we find that subjects tend to follow the price change of the other seller. In the complements treatment, however, this tendency increases with the degree of risk aversion.