Communication in Vertical Markets: Experimental Evidence
Hans-Theo Normann (Heinrich Heine University Düsseldorf, Germany)

When an upstream monopolist supplies several competing downstream firms,  it may fail to monopolize the market because of opportunistic behavior towards the downstream firms. We analyze this well-known commitment problem in an experiment where we extend previous research by allowing for communication. In one treatment, the upstream firm can bilaterally talk to either of two downstream firms. In a second treatment, all three firms talk together. We find that the treatment with bilateral communication leads to fewer rejections of offers and higher joint profits than a baseline treatment without communication, but output is still above the monopoly benchmark. Only the treatment where all three firms can communicate leads to complete monopolization. Such communication effectively works as a vertical restraint and should be regarding as potentially anticompetitive.

Joint with C. Moellers and C. Snyder

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Collusion and the choice of auction: An experimental study
Jeroen Hinloopen (University of Amsterdam)

We bring to the lab the theoretical result of Robinson (1985, RAND Journal of Economics 16: 141 – 145) that collusion is incentive compatible in the English auction (EN) and not in the first-price sealed-bid auction (FP) in the case of one-shot interaction. Our data partly confirm Robinson’s prediction: in FP all cartels break down, but a majority of cartels breaks down in EN as well. However, more cartels form in EN than in FP and stable cartels in EN obtain the item for a price well below its value. In the case of repeated interaction, the two auctions no longer differ in terms of cartel stability but stable cartels are still better able to reduce the winning bid in EN than in FP. Joint with Sander Onderstal.