The effects of market organization on conspiracies in restraint of trade

Abstract

Mindful of the market structure-conduct-performance paradigm fundamental to industrial organization research, this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance. We compare ‘posted-offer’ markets where sellers (but not buyers) are all conspiratorial opportunities with observations from three control groups: (1) posted-offer markets without conspiratorial opportunities, (2) ‘double-auction’ markets with conspiratorial opportunities and (3) posted-offer markets with true single-seller monopolists. The basic conclusions generated by our experimental design are: (1) seller conspiracies in posted-offer markets tend to raise prices (but not profits) relative to similarly organized markets without conspiracies, (2) posted-offer conspiracies tend to generate higher prices (but not profits) than double-auction conspiracies, and (3) posted-offer monopolies tend to generate higher profits (but not prices) then posted-offer conspiracies.