Capacity precommitment, communication, and collusive pricing. Theoretical benchmark and experimental evidence

DSpace Repository


Dokumentart: Article
Date: 2018-11-27
Source: University of Tübingen Working Papers in Economics and Finance ; 114
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Economics
Other Keywords:
capacity-then-price competition
excessive capacities
cheap talk
intra-play communication
experimental economics
Show full item record


In a capacity-then-price-setting game we experimentally identify capacity precommitment, the possibility to communicate before price choices, and prior competition experience as crucial factors for collusive pricing. The theoretical analysis determines the capacity thresholds above which firms have an incentive to coordinate on higher prices. The experimental data reveals that such intra-play communication after capacity but before price choices has a collusive effect only for capacity levels exceeding these thresholds. Subjects with high capacities generally choose higher prices when they have the possibility to communicate. Asymmetry in capacity choices decreases the truthfulness of price messages as well as the probability to coordinate on the same price.

This item appears in the following Collection(s)