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Faculty of Economics

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Darai, D., Roux, C., Schneider, F.

Mergers, Mavericks, and Tacit Collusion

CWPE1984

Abstract: We study whether firms’ collusive ability influences their incentives to merge: when tacit collusion is unsuccessful, firms may merge to reduce competitive pressure. We run a series of Bertrand oligopoly experiments where the participants decide whether, when, and to whom they send merger bids. Our experimental design allows us to observe (i) when and to whom mergers are proposed, (ii) when and by whom merger offers are accepted, and (iii) the effect on prices when mergers occur in this way. Our findings suggest that firms send more merger offers when prices are closer to marginal costs. Maverick firms that cut prices and thereby fuel competition are the predominant (but reluctant) receivers of these offers.

Keywords: Tacit collusion, Mavericks, Bertrand oligopoly, Experiments

JEL Codes: C91 D43 K21 L13 L41

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PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1984.pdf