Hans-Theo Normann

Collusion and Bargaining in Asymmetric Cournot Duopoly---An Experiment (with Ch. Fischer)

In asymmetric dilemma games without side payments, players face involved cooperation and bargaining problems. The maximization of joint profits is implausible, players disagree on the collusive action, and the outcome is necessarily inefficient. For the example of a Cournot duopoly with asymmetric cost, we investigate experimentally how players cooperate (collude implicitly and explicitly), if at all, in such games. We find that, without communication, players fail to cooperate and essentially play the static Nash equilibrium, confirming previous results. With communication, joint profits increase compared to the treatments without communication, but nearly all the gains from talking go to the inefficient firm. When the role of the efficient firm is earned in a contest, the efficient firm earns higher profits than when this role is randomly allocated.
Bargaining solutions do not satisfactorily predict collusive outcomes. Finally, when given the choice to talk, the efficient firms often decline that option.