A PYMNTS Company

Rebels without a clue? Experimental evidence on partial cartels

By  |  June 11, 2013

Posted by D. Daniel Sokol

Georg Clemens – Dusseldorf Institute for Competition Economics (DICE) and Holger A. Rau – Dusseldorf Institute for Competition Economics (DICE) ask Rebels without a clue? Experimental evidence on partial cartels

ABSTRACT: This paper provides experimental evidence on the formation of partial cartels with endogenous coordination. Firms face a coordination challenge when a partial cartel is to be formed as every firm is better off if it is not inside the cartel but is a free-riding outsider. We introduce a three-stage mechanism with communication which facilitates the formation of a cartel and respectively allows the formation of a partial cartel. All-inclusive cartels are always formed. We find that partial cartels are frequently rejected out-of-equillibrium if moutside firms profit excessively from the formation of the cartel.