Treating customers like markets: Tacit collusion and mutual forbearance in B2B oligopolies

Type of the article: Research Article

Abstract
In business-to-business contract markets, oligopolistic suppliers often exhibit stable pricing patterns and low customer switching rates that cannot be explained by explicit coordination. This paper investigates how market characteristics enable tacit collusion through customer-specific mutual forbearance, where competitors implicitly treat individual customers as separate market spheres, each served through individualized contracts.
We use a controlled laboratory experiment based on a dynamic Bertrand oligopoly with three suppliers and ten distinct customers across 17 trading periods. The design systematically varies two conditions: whether suppliers receive ex-post information on competitors’ transaction prices and customer relationships, and whether they can set individualized prices per customer. Customer decisions are simulated algorithmically to focus on supplier strategies and reduce variance. The experiment thus isolates the combined effect of price differentiation and information transparency on pricing under switching costs.
Our results demonstrate that when ex-post information and price differentiation coincide, suppliers develop implicit “customer ownership” understandings without explicit communication. We show that this combination significantly reduces customer-supplier switching and leads to higher offer and transaction prices compared to markets where either factor is absent. Additionally, suppliers engage in less aggressive poaching behavior when both information transparency and pricing flexibility are present.
These results confirm that information transparency enables suppliers to monitor customer boundaries and credibly threaten retaliation, while customer-specific pricing provides the mechanism for targeted punishment of boundary violations. Further, the findings provide managers in B2B sectors with actionable tools for strategic coordination.