Mergers, Asymmetries and Collusion: Experimental Evidence

Authors


  •  We are grateful to Kai-Uwe Kühn, three anonymous referees, and audiences at Bonn University, the FINEXE workshop (Joensuu) and the Royal Economic Society 2007 conference for valuable comments. We are also indebted the Leverhulme Trust for financial support (Research Grant F/07537/S, Merger Analysis in Experimental Markets). An earlier version of the paper was entitled ‘Unilateral and Coordinated Effects of Mergers: Experimental Evidence’.

Abstract

We analyse the impact of mergers in experimental Bertrand-Edgeworth oligopolies. Treatment variables are the number of firms (two, three) and the distribution of industry capacity (symmetric, asymmetric). Consistent with a dynamic collusion model, we find that, even though they are more concentrated, asymmetric markets exhibit lower prices than symmetric markets with the same number of firms. Consistent with the static Nash prediction, duopolies charge higher prices than triopolies when we control for (a)symmetry. The overall impact of a merger (which comprises both fewer firms and an asymmetry) is anti-competitive but the price increase is not significant.

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