Type of Document Dissertation Author Zillante, Arthur Louis URN etd-08192004-172814 Title Investigating the Alternating Periods Monopoly Degree Doctor of Philosophy Department Economics, Department of Advisory Committee
Advisor Name Title R. Mark Isaac Committee Chair Joe Cronin Committee Member Tim Salmon Committee Member Tom Zuehlke Committee Member Keywords
- Temporal Collusion
- Experimental Economics
- Baseball Card Industry
- Duration Analysis
Date of Defense 2004-08-17 Availability unrestricted AbstractAn oft-neglected pattern of behavior in the industrial organization literature occurs when firms time the release of their products so that they are not released on the same date. Because of the potentially collusive nature of this practice, there may be legitimate antitrust concerns. This paper presents a model of this behavior which will be called the alternating periods monopoly (APM). Industry characteristics that increase the likelihood of the APM are developed and conditions are derived in a stochastic demand environment to show when firms would prefer to use the APM to other sustainable methods of collusion.
A detailed description of the post World War II baseball card industry is presented using the standard industrial organization structure-conduct-performance paradigm as a guide. The characteristics of the baseball card industry closely parallel those characteristics discussed in the theoretical model. This parallel between the theory and the industry suggests that data from the baseball card industry may be used to determine if the manufacturers are using an APM.
Current methods of detecting potentially collusive behavior are discussed in the fourth chapter. The data from the baseball card industry do not meet the assumptions needed to effectively use the current methods, rendering them useless in this particular industry. I propose a new empirical test based on duration analysis to determine if firms are using the APM. Using the time between product release data from the baseball card industry, I estimate hazard rates that show positive duration dependence. I also estimate hazard rates for data sets constructed using the same parameters (number of releases and number of days over which those releases occur) as the baseball card industry, but forcing the firms to release in ways that would not be considered to match the APM. The hazard rates for the constructed data show negative duration dependence, which provides evidence that the data from the baseball card industry is consistent with an APM hypothesis.
The fifth chapter of the dissertation uses an economic experiment to determine if the APM can arise without free-form communication between subjects. The existence of practices that facilitate collusion has generated a large discussion in the antitrust arena. This experiment allows subjects to communicate their future intentions of entering a market in a particular time period by means of a binary signal, where 1 signals enter and 0 signals exit. The overwhelming evidence provided by the experiment is that subjects cannot use the binary signals to coordinate on an APM, even though it is clear that some subjects are both signaling a willingness to participate in an APM and making entry decisions consistent with an APM. These experiments show that the practice of sending non-binding communication is not enough to foster collusion among all subjects, although the treatments with fewer subjects and higher costs show some evidence that an APM may arise under these conditions.
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