Chapter 21 The Effects of Collusion in Laboratory Experiments

Even when markets seem to alternate between collusive and non-collusive phases, the price differences are difficult to interpret since a breakdown in collusion may be caused by a demand decrease that would have reduced prices in any case. This makes the laboratory an ideal setting to study factors that facilitate or hinder illegal price fixing. The main result from the experimental economics literature is that the market trading institutions are crucial in determining whether or not collusion will be successful in raising prices above competitive levels. This chapter examined the effects of seller discussions between rounds of a continuous double auction. In particular, the sellers were allowed to come together to a corner of one of the rooms and confer after the close of one trading period and before the start of another. Attempts to collude were as ineffective as they were inevitable. The problem is that each seller has a strong private incentive to defect and lower the asking price during the course of the double auction trading .