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How Product Innovation Can Affect Price Collusion

By  |  August 6, 2017

Posted by Social Science Research Network

How Product Innovation Can Affect Price Collusion

By Andrew Smyth (Marquette University)

Abstract:     Price conspiracies appear endemic in many markets. This paper conjectures that low expected returns from product innovation can affect price collusion in certain markets. This conjecture is tested—and supported—by both archival and experimental data. In particular, average market prices in low innovation experiments are significantly greater than those in high innovation, but otherwise identical experiments, because price collusion is more successful in the low innovation experiments.

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