Uncertainty, Information Sharing and Tacit Collusion in Laboratory Duopoly Markets

Abstract

This paper reports 45 laboratory duopoly markets that examine the importance of information sharing in facilitating tacit collusion under conditions of demand uncertainty. Sellers in these repeated laboratory markets generally shared information when possible to reduce their demand uncertainty, which led to output reductions in some demand states. Risk aversion is a likely explanation for this sharing, but some sellers also appeared to employ a strategy of information concealment to punish non-colluding rivals. Nevertheless, output choices were similar in control treatments that forced sellers to share or conceal information, so the information sharing itself did not substantially increase tacit collusion.