Essays in experimental industrial organization: How communication and information affect market outcomes

This thesis consists of three independent essays that use laboratory experiments to address a number of industrial organization questions. In particular, it studies the role of communication and information revelation in market interactions. Chapters 2 and 3 focus on the question of how communication between firms affects the way they compete in the market. By introducing communication in our experimental markets, my analysis diverges from traditional industrial organization conventions in two ways. First, in Chapter 2 we expect (and find) different outcomes in markets with and without communication. This contrasts with the standard model of collusion that does not distinguish between implicit and explicit collusion so that its predictions do not depend on communication possibilities. In Chapter 3, I introduce communication in such a way that firms individually can decide whether or not to communicate with other firms in the same market, i.e., whether they want to be part of a cartel. In this way, partial cartels can form endogenously, which is precluded in traditional oligopoly models where cartels are assumed to be all-inclusive. Finally, I study the effect of information revelation in market outcomes. In Chapter 2, I analyze the impact of information about other firms’ actions and outcomes on market prices in an oligopoly setting. In Chapter 4, I examine the effect of revealing information about the outcome of an auction to an external party on bidding behavior and auction revenue. I do so in a setting where the external party’s estimates of bidders’ values influence bidders’ payoffs.