Cartel formation and pricing: the effect of managerial decision-making rules

Gillet, Joris and Schram, Arthur and Sonnemans, Joep (2011) Cartel formation and pricing: the effect of managerial decision-making rules. International Journal of Industrial Organization, 29 (1). pp. 126-133. ISSN 0167-7187

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Abstract

We experimentally investigate how the managerial decision-making process affects choices in a Bertrand pricing game with an opportunity to form non-binding cartels. To do so we compare the effects of three decision-making rules for the firm (decisions by CEOs, majority rule and consensus) to each other and to decisions in a benchmark consisting of single-individual firms. It has been argued elsewhere that groups behave more competitively than individuals. In this setting this predicts that for all three decision-making rules we should observe fewer cartels and lower prices. This is not what we find. For the formation of cartels, there are no differences across treatments. For prices asked, we find that first, cartels lead to higher prices in all treatments, despite the fact that they are non-binding. Second, the decision-making rules strongly affect the prices asked. One thing that stands out is that firms run by CEOs ask higher prices (i.e., defect less often from the cartel) than observed in the other treatments.

Item Type: Article
Research Areas: A. > Business School > Economics > Behavioural Economics group
A. > Business School > Economics
Item ID: 11946
Depositing User: Aran Lewis
Date Deposited: 18 Sep 2013 16:11
Last Modified: 13 Oct 2016 14:28
URI: http://eprints.mdx.ac.uk/id/eprint/11946

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