Conspiracies and Secret Discounts in Laboratory Markets

This paper uses laboratory methods to evaluate whether price-fixing conspiracies break down in the presence of opportunities to offer secret discounts. The primary treatment difference is whether or not buyer-specific discounts from the posted list price are permitted. In standard posted-offer markets, conspiring sellers almost uniformly find and maintain near-monopoly prices. But when the possibility of offering secret discounts is introduced, sellers find sustaining collusive agreements much more difficult and transactions prices tend to fall toward competitive levels. Secret discounts yield competitive outcomes less consistently, however, when sellers are provided ex post information about sales quantities.