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CeDEx 2015-11: Endogenous information disclosure in experimental oligopolies

Endogenous information disclosure in experimental oligopolies

Summary

Competition authorities typically raise concerns about the dissemination of firm-specific data but not about aggregate values as the former can have anti-competitive effects. However, experimental evidence shows that this is not necessarily the case. When subjects are informed about firm-specific production levels and profits, then the market outcome is more competitive than under aggregate information (Huck et. al, 1999, EJ and Huck et. al, 2000, IJIO). On the other hand, Offerman et. al (2002, REStud) finds that information about individual production levels leads to a more collusive outcome whereas the outcome is more competitive when subjects are informed about profits too. 

In this Nottingham School of Economics working paper Dávid Kopányi and Anita Kopányi-Peuker complement the existing experimental literature on this topic by considering an endogenous information structure where subjects can decide whether they want to share information with others or not. The paper investigates whether firm-specific information indeed results in a less competitive market outcome and what the effect of the voluntary nature of information sharing is. In the experiment subjects play the role of firms and they decide how much to produce. The authors vary the kind of information subjects may receive: firm-specific production levels or aggregate output. In the first two parts of the experiment, the information structure is exogenous: Subjects either receive information about firm-specific/aggregate output or they do not receive any information. In the third part, subjects are free to choose whether to inform others about their production levels. The experimental results show that subjects use information sharing to show their intentions to collude. They produce significantly less when they share information compared to when they decide not to share information. Furthermore, when subjects decide not to share information, production levels are significantly higher than when information is not available by default. There is no significant difference in the market outcomes under firm-specific and aggregate information even though more attempts for collusion are observed under individual information. However, both the voluntary nature of information sharing and the level of data aggregation can matter: The most attempts for collusion are observed under voluntary sharing of firm-specific data.

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CeDEx 2015-11, Endogenous information disclosure in experimental oligopolies by Dávid Kopányi and Anita Kopányi-Peuker

Authors

David Kopanyi and Anita Kopanyi-Peuker

 

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Posted on Wednesday 3rd June 2015

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