Niklas Horstmann

Oligopoly Competition in Continuous Time

We conduct oligopoly competition experiments with differentiated goods in discrete and continuous time. Continuous time experiments allow for real-time, asynchronous strategic interaction and are therefore argued to be a more realistic mode of interaction, particularly in the context of (electronic) markets. We consider duopolies and triopolies both under Bertrand as well as Cournot competition and consistently find that, ceteris paribus, tacit collusion is higher under discrete time than under continuous time, which contrasts the theoretical prediction. Thus, our results bear important methodological implications for research on oligopoly competition.

Number Effects and Tacit Collusion in Experimental Oligopolies

We systematically investigate the relationship between the number of firms in a market and tacit collusion by means of a meta-analysis of the literature on oligopoly experiments as well as two of our own experiments with a total of 368 participants. We show that the degree of tacit collusion decreases strictly with the number of competitors in industries with two, three and four firms. Although previous literature could not affirm that triopolies are more collusive than quadropolies, we provide evidence for this fact for symmetric and asymmetric firms under Bertrand and Cournot competition.

Wholesale Competition, Open Access Regulation and Tacit Collusion

Although the regulation of access to an essential upstream resource is a perennial issue for policymakers and industry stakeholders, a set of new issues arises when there is more than one vertically integrated access provider such that competition at the wholesale level may emerge in addition to retail competition. Especially in the likely case of a highly concentrated (duopoly) wholesale market the question arises whether regulatory intervention is (still) warranted. Evidently, the answer to this question will have direct ramifications on how regulators and competition authorities should deal with this kind of market structure, but also on whether authorities should promote the entry of a second integrated access provider in markets in which the essential input is currently supplied monopolistically.Albeit not confined to this context, the analysis of this market scenario of competing access providers is particularly relevant for the telecommunications industry. Due to technological progress and consolidation both the fixed and the mobile industries are characterized by few vertically integrated firms, as well as several non-integrated resellers that rely on access to an upstream resource. On the one hand, with respect to fixed networks, technological progress led to the roll out of new fiber-optic networks as well as the evolution of broadband cable networks, which both created new vertically integrated firms that compete most notably in densely populated urban areas with the traditional telecommunications incumbent. On the other hand, mobile telecommunications markets recently experienced a wave of mergers and acquisitions that reduced the number of independent operators maintaining a distinct cellular infrastructure, thus increasing market concentration at the wholesale level. We consider the market scenario where wholesale access for a non-integrated reseller is provided competitively by two vertically integrated firms. In a continuous-time economic laboratory experiment with both student and expert participants we compare market outcomes under different modes of wholesale competition as well as under an open access regulation preventing a margin squeeze. In this vein and in the spirit of a more behaviorally oriented regulation, this experimental analysis serves as a regulatory testbed, which points at possible behavioral issues that may arise in practice. We find that wholesale competition can facilitate tacit collusion, which yields wholesale and retail prices even above the monopoly level. We draw on the literature on upstream collusion and show in a theoretical analysis that incentives for tacit collusion are actually higher under wholesale competition if an infinitely repeated game context is considered. We demonstrate that wholesale competition may be intensified by a simple price commitment rule, which in turn restores the theoretical prediction to the extent that access prices are lower than under a wholesale monopoly. Moreover, the experimental results give a clear indication regarding the theoretically ambiguous effect of margin squeeze regulation on retail market prices, showing that consumers are never better off compared to no regulation in both the monopoly and the duopoly wholesale scenario.