Bargaining with confirmed proposals: an experimental analysis of tacit collusion in Cournot and Bertrand duopolies

In this paper, we investigate theoretically and experimentally the performances of a bargaining over strategies protocol with confirmed proposal, with either symmetric or asymmetric power of confirmation. We apply it both on a Bertrand duopoly market, in which competition is in prices, and on a Cournot duopoly market, in which players compete on the amount of output they will produce. We show that bargaining over strategies of price- or quantity-setting acts as a communication device in competitive environments, capable of increasing the level of collusion and of reducing the bargaining length. In particular, we report experimental evidence of an overall better performance of a Bertrand duopoly market in reaching an equitable, welfare-maximizing and Pareto-efficient agreement. However, competing in price rather than in quantity setting reduces the bargaining length only under an asymmetric proposal protocol, while under a symmetric proposal protocol price setting only has a second-order effect on reducing the bargaining length.