Number Effects and Tacit Collusion in Experimental Oligopolies

Abstract

We systematically investigate the relationship between the number of firms in a market and tacit collusion by means of a meta-analysis of the literature on oligopoly experiments as well as two of our own experiments with a total of 368 participants. We show that the degree of tacit collusion decreases strictly with the number of competitors in industries with two, three and four firms. Although previous literature could not affirm that triopolies are more collusive than quadropolies, we provide evidence for this fact for symmetric and asymmetric firms under Bertrand and Cournot competition. † Authors' affiliations:

Artificial Intelligence, Algorithmic Pricing, and Collusion

“…More recently analyses paint a more nuanced picture, though. In some experiments, three or four human subjects manage to achieve levels of coordination comparable to our algorithms: seeHorstmann, Krämer, and Schnurr (2018) andFriedman et al (2015).38 In order to make the learning process more effective, the increase in the amount of experimentation is matched by a decrease in the learning rate. The increase in the profit gain goes hand in hand with the increase in the frequency of equilibrium play.…”

Hybrid Collusion: Algorithmic Pricing in Human-Computer Laboratory Markets

“…The evidence on cooperation in three-player groups is somewhat inconclusive (and hence a good starting point for us). While Horstmann et al (2018) do find some collusion in n = 3 oligopolies with differentiated goods, Freitag et al (2020) do not find any supracompetitive outcomes in a multimarket context benign to collusion. Already Marwell and Schmitt (1972) reported that three-person prisoner's dilemmas are substantially less cooperative than two-player experiments.…”

“…On the other hand, markets with n = 4 firms may already be too competitive for significant collusion to occur at all. Collusive outcomes in market experiments are correlated with the number of firms, and prior experiments indicate that four competitors rarely reach collusive conduct (Engel, 2015;Fonseca and Normann, 2012;Horstmann et al, 2018;Huck et al, 2004;Potters and Suetens, 2013). For the sake of completeness, we state the Null here: Hypothesis H 5 : (Null) Cooperation rates in Algorithm Certain 4 do not differ from those in Human Certain 4.…”

Competition dynamics in Nigerian aviation industry: a game theoretic approach

“…Sanjo [23] suggested that the capital based on a firm and the business location is critical for competition. Further on competition, some studies claimed that the degree of the firm's orientation is crucial in surviving the dynamic competitiveness in the face of uncertain and highly challenging business environment [24][25][26][27].…”