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An experiment on supply function competition

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  • Bolle, Friedel
  • Grimm, Veronika
  • Ockenfels, Axel
  • del Pozo, Xavier

Abstract

We experimentally investigate key predictions of supply function equilibrium. While, overall, equilibrium organizes bidding behavior well, we observe three important deviations. First, bidding is sensitive to theoretically irrelevant changes of the demand distribution. Second, in a market with symmetric firms we observe tacit collusion in that firms provide less than the predicted quantities. Third, in a market with asymmetric capacities, the larger firm bids more competitively than predicted, while the smaller firms still provide less than equilibrium quantities.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 63 (2013)
Issue (Month): C ()
Pages: 170-185

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Handle: RePEc:eee:eecrev:v:63:y:2013:i:c:p:170-185

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Supply function competition; Experiment; Demand uncertainty; Asymmetric firms;

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