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 are able to find and maintain near-monopoly prices. But when the possibility of offering secret discounts is introduced, sellers are unable to sustain collusive agreements, and transactions prices fall to near-competitive levels. Secret discounts, however, do not yield consistent competitive outcomes when sellers are provided ex post information about sales quantities.