Université de Lausanne
Faculté des HEC
Département d'économétrie et d'économie politique

 

Cahier de recherches économiques du DEEP No. 13.02

 

Catherine Roux and Christian Thöni

 

Collusion Among Many Firms: The Disciplinary Power of Targeted Punishment

February 2013


Abstract
We explore targeted punishment as an explanation for collusion among many firms. In a series of Cournot oligopoly experiments with various numbers of firms, we compare production decisions with and without the possibility to target punishment at specific market participants. We find strong evidence that targeted punishment enables firms to establish and maintain collusion. More so, we find that the collusive effect of targeted punishment is even stronger in markets with more competitors, suggesting a reversal of the conventional wisdom that collusion is easier the fewer the firms.


Keywords: Cournot oligopoly; Experiments; Collusion; Targeted punishment

JEL classification: L13 ; K21 ; C91