Tuesday, July 28, 2015
Peter Dijkstra, Marco A. Haan, and Machiel Mulder (Groningen University) offer Industry structure and collusion with uniform yardstick competition.
ABSTRACT: We study cartel stability in an industry that is subject to uniform yardstick regulation. In a theoretical model, we show that the number of symmetric firms does not affect collusion. In a laboratory experiment, however, we do find an effect. If anything, increasing the number of firms facilitates collusion. Our theory suggests that an increase in heterogeneity increases the regulated price if firms do not collude, but also makes collusion harder, rendering the net effect ambiguous. Our experiment suggests that the effect of collusion is stronger.