Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment Recent research has found significant differences in the ability of subjects tacitly to collude, depending on the nature of the strategic interaction (e.g., Cournot vs. Bertrand or substitutes vs. complements goods). We investigate the relationship between subject-specific risk tolerance and tacit collusion in Bertrand duopoly experiments. We find that less risk-averse subjects price higher than do their more risk-averse counterparts, but this relationship is only significant when actions are strategic substitutes. When we analyze pair-level data, we find that non-risk averse subject pairs price significantly higher than do risk averse and mixed pairs in both the substitutes and complements treatments. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

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Publisher
Springer US
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-011-9330-8
Publisher site
See Article on Publisher Site

Abstract

Recent research has found significant differences in the ability of subjects tacitly to collude, depending on the nature of the strategic interaction (e.g., Cournot vs. Bertrand or substitutes vs. complements goods). We investigate the relationship between subject-specific risk tolerance and tacit collusion in Bertrand duopoly experiments. We find that less risk-averse subjects price higher than do their more risk-averse counterparts, but this relationship is only significant when actions are strategic substitutes. When we analyze pair-level data, we find that non-risk averse subject pairs price significantly higher than do risk averse and mixed pairs in both the substitutes and complements treatments.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Jan 4, 2012

References

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