An Experimental Study of the Impact of Product Differentiation on Collusive Behaviour

Abstract

We will study the relationship between product diB.erentiation and price in asetting where collusion can arise. The standard theory of tacit collusion predictsan ambiguous relationship between the price supported and product diB.erentiationunder linear demands. Other theories such as the price matching punishment'stheory of collusion predict a monotonic relationship. We wish to discover therelationship between product diB.erentiation and prices in an experimental settingwhere tacit collusion can arise. Despite the obvious interest both from a theorypoint of view and from a policy perspective, this has not been tested before.