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Pricing behavior in asymmetric markets with differentiated products

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Author Info

  • Peeters, Ronald
  • Strobel, Martin

Abstract

We experimentally test Bertrand-Nash equilibria in markets with differentiated products. In contrast to the existing literature, we choose asymmetric market settings in which pure strategy equilibria do not exist. Our results show that Bertrand-Nash equilibria do remarkably well in predicting price distributions and comparative statics. Inaccuracies can be explained by boundedly rational decision-making. Other equilibrium concepts are not able to explain the data.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 1 (January)
Pages: 24-32

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Handle: RePEc:eee:indorg:v:27:y:2009:i:1:p:24-32

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Differentiated markets Bertrand-Nash equilibrium Experiment Edgeworth price cycles Undercut-proof equilibrium;

References

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  1. Bester,Helmut, 1988. "Bertrand equilibrium in a differentiated duopoly," Discussion Paper Serie A 209, University of Bonn, Germany.
  2. C. Monica Capra & Jacob K. Goeree & Rosario Gomez & Charles A. Holt, 2000. "Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition," Virginia Economics Online Papers 336, University of Virginia, Department of Economics.
  3. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  4. Kubler, Dorothea & Muller, Wieland, 2002. "Simultaneous and sequential price competition in heterogeneous duopoly markets: experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1437-1460, December.
  5. Douglas Davis & Bart Wilson, 2006. "Equilibrium Price Dispersion, Mergers and Synergies: An Experimental Investigation of Differentiated Product Competition," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 169-194.
  6. Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, vol. 22(2), pages 313-326, April.
  7. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
  8. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  9. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1998. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," Industrial Organization 9803004, EconWPA.
  10. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
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Cited by:
  1. Evens Salies, 2012. "Asymetric switching costs can improve the predictive power of shy's model," Documents de Travail de l'OFCE 2012-14, Observatoire Francais des Conjonctures Economiques (OFCE).

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