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An experiment on spatial price competition

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  • Orzen, Henrik
  • Sefton, Martin

Abstract

This paper investigates price competition in a segmented market. Each segment contains one seller and one consumer, and consumers incur transportation costs when they buy from a seller located in another segment. We consider several competing theoretical solutions to this game and compare the outcomes of a laboratory experiment against these. We find that mixed strategy equilibrium predictions from the analysis of a static model perform better than alternative benchmarks in organizing the data. In particular we observe persistent price dispersion, we find that larger markets are more competitive, and we find that competitive pressures in large markets preclude sellers from exploiting higher consumers' willingness to pay.

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  • Orzen, Henrik & Sefton, Martin, 2008. "An experiment on spatial price competition," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 716-729, May.
    • Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:716-729
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    Cited by:

    1. Aurélie Bonein & Stéphane Turolla, 2023. "Spatial competition with demand uncertainty: A laboratory experiment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(4), pages 906-939, October.
    2. repec:hal:spmain:info:hdl:2441/53r60a8s3kup1vc9ji1hni539 is not listed on IDEAS
    3. García-Gallego Aurora & Georgantzís Nikolaos & Pereira Pedro & Pernías-Cerrillo José C., 2016. "Bias and Size Effects of Price-Comparison Platforms: Theory and Experimental Evidence," Review of Network Economics, De Gruyter, vol. 15(1), pages 1-34, March.
    4. Dimitrios Xefteris & Iván Barreda-Tarrazona & Aurora García-Gallego & Nikolaos Georgantzis, 2018. "Catalog Competition: Equilibrium Characterization and experimental evidence," Working Papers 2018/08, Economics Department, Universitat Jaume I, Castellón (Spain).
    5. Jan Potters & Sigrid Suetens, 2013. "Oligopoly Experiments In The Current Millennium," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 439-460, July.
    6. Evens Salies, 2012. "Asymmetric switching costs can improve the predictive power of shy's model," SciencePo Working papers Main hal-01070341, HAL.
    7. Dimitrios Xefteris & Iván Barreda‐Tarrazona & Aurora García‐Gallego & Nikolaos Georgantzís, 2023. "Catalog competition: Theory and experimental evidence," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 122-137, January.
    8. Barreda-Tarrazona, Iván & García-Gallego, Aurora & Georgantzís, Nikolaos & Andaluz-Funcia, Joaquín & Gil-Sanz, Agustín, 2011. "An experiment on spatial competition with endogenous pricing," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 74-83, January.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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