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Trial Title
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Do Governmental Economic Institutions help to foster tacit collusion ?
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Concerns about rising prices may raise prices
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Abstract
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Before
We present an experimental design to investigate whether governmental economic institutions statements about a particular market foster tacit collusion. These statements arise when there is a significant increase in firms' costs (e.g. oil barrel prices after the worsening of the Ukrainian War in February 2022). Such statements suggest a clear direction (whether the disproportional increase of the prices compared to the cost is likely or not). A statement fearing collusion may reduce the strategic uncertainty surarrounding collusion and also correlate actions among firms after the cost increase. A statement that does not fear collusion does not reduce the strategic uncertainty but might still correlate actions among firms since there is a potential commitment device that can reduce the probability of a price war due to miscoordination in prices. Thus, theses statements might represent a good opportunity for market participants to tacitly collude, using the statements as a coordination device. In other words, the statements might be used by the companies operating in this market to achieve a higher degree of profitability hidden behind a necessary adaptation to inflation.
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After
We use a laboratory experiment to investigate whether statements from a governmental
institution expressing concerns about price increases trigger such increases by facilitating
tacit collusion. Such statements on market conduct are disclosed after an exogenous
and unexpected upward cost shock. The two potential channels affecting tacit collusion
work through (i) a reduction of strategic uncertainty and (ii) an inducement of
correlated beliefs. We find that issued statements of concern become a self-fulfilling
prophecy triggering price increases and that a reduction in strategic uncertainty drives
this adverse effect. Our results suggest that institutions should refrain from publishing
such statements of concern.
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JEL Code(s)
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C73, C91, D83
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C71, C92, D91, D83
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Last Published
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June 16, 2024 01:25 PM
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July 11, 2024 07:44 PM
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Study Withdrawn
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No
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Intervention Completion Date
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July 14, 2023
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Data Collection Complete
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Yes
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Final Sample Size: Number of Clusters (Unit of Randomization)
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45 clusters
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Was attrition correlated with treatment status?
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No
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Final Sample Size: Total Number of Observations
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270 subjects
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Final Sample Size (or Number of Clusters) by Treatment Arms
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90 subjects BASELINE, 90 subjects LIKELY (old PESSIMISTIC), 90 subjects UNLIKELY (old OPTIMISTIC)
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Is there a restricted access data set available on request?
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Yes
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Restricted Data Contact
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[email protected]
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Program Files
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No
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Data Collection Completion Date
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July 14, 2023
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Is data available for public use?
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No
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Primary Outcomes (End Points)
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Our focus is on the results of the 5th supergame (in the instructions, subjects see the 5th and the 6th cycle) where the intervention occurs during this supergame. Only the data of the 5th supergame is to interest for us. The first 4 supergames are to be considered as trial periods (in order that subjects gain experience in the game and in belief elicitation).
BELIEFS: belief about cooperation of firms' competitors just before and after the statement
PRICES: individual, market prices and average prices at the matching group level just before and after the statement
DEGREE OF PROFITABILITY: degree of profitability of a market and average degree of profitability at the matching group level just before and after the statement
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Our focus is on the results of the 5th supergame (in the instructions, subjects see the 5th and the 6th cycle) where the intervention occurs during this supergame. Only the data of the 5th supergame is to interest for us. The first 4 supergames are to be considered as trial periods (in order that subjects gain experience in the game and in belief elicitation).
EDIT: after discussion with many specialists, the 5th and the 6th cycle are equivalent to a 5th and 6th supergame, so that we run 6 supergame but without rematching between the 5th and the 6th since we want to observe the difference within markets.
BELIEFS: individual belief about cooperation of firms' competitors just before and after the statement
PRICES: individual prices just before and after the statement
DEGREE OF PROFITABILITY: degree of profitability of a market just before and after the statement
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Primary Outcomes (Explanation)
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Before
BELIEFS: we will use three differents measures of the belief of cooperation q (which is between 0 and 1) of the firms' competitors:
1.beliefs about the highest possible prices (which offers a very conservative measure of the belief of cooperation about competitors)
2.beliefs about higher or equal prices set by competitors at the actual period compared to last period's market price
3. All prices set above the Nash Equilibrium (common measure of collusion in the literature). This will be our main measure to analyze the changes in beliefs.
Each firm will give its estimation about the action of each competitor separately. We elicit the whole distribution of possible prices. To comply to our model that assumes that the belief q about its two competitors is the same, we will take the minimum, the maximum and the average of the two elicited beliefs. Finally, we will compute the change of beliefs between the first period after intervention and the last period before intervention. After this period, we will analyze the beliefs during the end of the 5th supergame given the intervention.
PRICES: Since the set of possible prices changes (due to the cost shock and the related change in reservation price), In the first version of this pre-registration document, we stated that we will use a Diff-and-Diff regression to measure the impact of each treatment separately. At this time, we did not think about an IV speicifcation where the random allocation to treatments would solve the endogeneity between prices and beliefs. The IV specification is the one you find in our manuscript. Our main analysis will be on individual submitted prices with Block bootstrapped standard errors in brackets, where the blocks are the matching groups. Bootstrap with 9999 repetitions
DEGREE OF PROFITABILITY: The degree of profitability is a standardized measure of the (gross) mark-up of a firm. It allows us to compare the changes before and after the treatment directly within markets. We will perform regressions correcting for multiple hypotheses (Roman-Wolf correction) OLS clustered regressions.
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After
BELIEFS: we will use three differents measures of the belief of cooperation q (which is between 0 and 1) of the firms' competitors:
1.beliefs about the highest possible prices (which offers a very conservative measure of the belief of cooperation about competitors)
2.beliefs about higher or equal prices set by competitors at the actual period compared to last period's market price
3. All prices set above the Nash Equilibrium (common measure of collusion in the literature). This will be our main measure to analyze the changes in beliefs.
Each firm will give its estimation about the action of each competitor separately. We elicit the whole distribution of possible prices. To comply to our model that assumes that the belief q about its two competitors is the same, we will take the minimum of the two elicited beliefs. . After this period, we will analyze the beliefs of the 5th and 6th supergame given the intervention.
PRICES: Since the set of possible prices changes (due to the cost shock and the related change in reservation price), EDIT : In the first version of this pre-registration document, we stated that we will use a Diff-and-Diff regression to measure the impact of each treatment separately. At this time, we did not think about an IV speicifcation where the random allocation to treatments would solve the endogeneity between prices and beliefs. The IV specification is the one you find in our manuscript. Our main analysis will be on individual submitted prices with Block bootstrapped standard errors in brackets, where the blocks are the matching groups. Bootstrap with 9999 repetitions
DEGREE OF PROFITABILITY: The degree of profitability is a standardized measure of the (gross) mark-up of a firm. It allows us to compare the changes before and after the treatment directly within markets. We will perform regressions correcting for multiple hypotheses (Roman-Wolf correction) OLS clustered regressions.
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Additional Keyword(s)
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Tacit Collusion, Governmental statements, Strategic Uncertainty
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beliefs, coordination device, strategic uncertainty, tacit collusion
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Keyword(s)
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Behavior, Firms And Productivity
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Behavior, Firms And Productivity, Lab
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Intervention (Hidden)
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Before
We have three conditions :
BASELINE(B)
OPTIMISTIC(O)
PESSIMISTIC(P)
Baseline is our control condition, so that there will be no intervention here to get the counterfactual result.
Optimistic refers to the fact that the government does not fear tacit collusion and therefore does not fear that the degree of profitability increases. We will show a statement between the cost shock and the following period stating that a economic institution thinks it is UNLIKELY that the increase in costs leads to an overproportional increase in prices.
Pessimistic refers to the fact that the government fears collusion and therefore fears that the degree of profitability increases. We will show a statement between the cost shock and the following period stating that a economic institution thinks it is LIKELY that the increase in costs leads to an overproportional increase in prices.
Only the two words in capital letters will change between the stylized statements of O and P.
Each subject will face only one condition, i.e. we have a between-subject design.
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We have three conditions :
BASELINE(B)
In the working paper, this condition is called now UNLIKELY (Former version OPTIMISTIC(O))
In the working paper, this condition is called now LIKELY (Former version PESSIMISTIC(P)
Baseline is our control condition, so that there will be no intervention here to get the counterfactual result.
Optimistic (now UNLIKELY) refers to the fact that the government does not fear tacit collusion and therefore does not fear that the degree of profitability increases. We will show a statement between the cost shock and the following period stating that a economic institution thinks it is UNLIKELY that the increase in costs leads to an overproportional increase in prices.
Pessimistic (now LIKELY) refers to the fact that the government fears collusion and therefore fears that the degree of profitability increases. We will show a statement between the cost shock and the following period stating that a economic institution thinks it is LIKELY that the increase in costs leads to an overproportional increase in prices.
Only the two words in capital letters will change between the stylized statements of O and P.
Each subject will face only one condition, i.e. we have a between-subject design.
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