Is the "smoke-filled room" necessary? An experimental study of the effect of communication networks on collusion

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Authors
Flannery, Timothy
Wang, Siyu
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Issue Date
2023-03-03
Type
Article
Keywords
Bertrand , Collusion , Communication , Experiment , Networks
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Citation
Flannery, T., & Wang, S. (2023). Is the "smoke-filled room" necessary? An experimental study of the effect of communication networks on collusion. Southern Economic Journal, 1– 22. https://doi.org/10.1002/soej.12626
Abstract

We investigate how well firms can collude with partial communication in relation to full communication. We find that firms vary their communication strategies with network structures. In the networks that have either an isolated firm or full communication, more players send "pure promises" suggesting everyone select the collusive actions unconditionally. In the network with leadership, more players send a "promise and threat" which includes a reward for collusion and a punishment for deviating. Because of the inability to communicate in the network with the isolated firm and the high frequency of deviation and punishment in the network with leadership, the full communication network achieves significantly higher payoff than partial communication.

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Publisher
John Wiley & Sons, Ltd
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Series
Southern Economic Journal
2023
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DOI
ISSN
0038-4038
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