An experiment on spatial competition with endogenous pricing
AbstractHotelling's (1929) principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far. We report results from experimental spatial duopolies designed to address this issue. The levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion. The observed prices are consistent with collusion attempts. Our main findings are robust to variations in three experimental conditions: automated vs. human market sharing rule for ties, individual vs. collective decision making, and even vs. odd number of locations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505551
Product differentiation Price competition Sharing rules;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979.
"On Hotelling's "Stability in Competition","
Econometric Society, vol. 47(5), pages 1145-50, September.
- Baron, David P, 1970. "Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 463-80, October.
- Henrik Orzen & Martin Sefton, 2006.
"An Experiment on Spatial Price Competition,"
2006-14, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Otwin Becker & Tanja Feit & Vera Hofer & Ulrike Leopold-Wildburger & Reinhard Selten, 2007. "Educational effects in an experiment with the management game SINTO-Market," Central European Journal of Operations Research, Springer, vol. 15(4), pages 301-308, November.
- Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
- Eaton, B Curtis & Lipsey, Richard G, 1975.
"The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition,"
Review of Economic Studies,
Wiley Blackwell, vol. 42(1), pages 27-49, January.
- B.Curtis Eaton & Richard G. Lipsey, 1972. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Working Papers 87, Queen's University, Department of Economics.
- Brown-Kruse, Jamie & Cronshaw, Mark B & Schenk, David J, 1993. "Theory and Experiments on Spatial Competition," Economic Inquiry, Western Economic Association International, vol. 31(1), pages 139-65, January.
- Collins, Richard & Sherstyuk, Katerina, 2000.
"Spatial Competition with Three Firms: An Experimental Study,"
Western Economic Association International, vol. 38(1), pages 73-94, January.
- Collins, Richard & Sherstyuk, Katerina, 1999. "Spatial Competition with Three Firms: An Experimental Study," Working Papers 1057, California Institute of Technology, Division of the Humanities and Social Sciences.
- Collins, R. & Sherstyuk, K., 1998. "Spatial Competition with Three Firms: An Experimental Study," Department of Economics - Working Papers Series 631, The University of Melbourne.
- Hviid, Morten, 1989. "Risk-Averse Duopolists and Voluntary Information Transmission," Journal of Industrial Economics, Wiley Blackwell, vol. 38(1), pages 49-64, September.
- Martin J. Osborne, 1992.
"Candidate Positioning and Entry in a Political Competition,"
Department of Economics Working Papers
1992-02, McMaster University.
- Osborne Martin J., 1993. "Candidate Positioning and Entry in a Political Competition," Games and Economic Behavior, Elsevier, vol. 5(1), pages 133-151, January.
- Brown Kruse, Jamie & Schenk, David J., 2000. "Location, cooperation and communication: An experimental examination," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 59-80, January.
- Huck, Steffen & Müller, Wieland & Vriend, Nicolaas J., 2000.
"The East End, the West End, and King's Cross: On clustering in the four-player hotelling game,"
SFB 373 Discussion Papers
2000,24, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Steffen Huck & Wieland M¸ller, 2002. "The East End, the West End, and King's Cross: on Clustering in the Four-Player Hotelling Game," Economic Inquiry, Western Economic Association International, vol. 40(2), pages 231-240, April.
- Huck, S. & Müller, W. & Vriend, N.J., 2002. "The East End, the West End and King's Cross: On clustering in the four-player Hotelling game," Open Access publications from Tilburg University urn:nbn:nl:ui:12-112550, Tilburg University.
- Asplund, Marcus, 1995.
"Risk-Averse Firms in Oligopoly,"
Working Paper Series in Economics and Finance
69, Stockholm School of Economics, revised 21 Sep 1999.
- Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-29, June.
- Schmalensee, Richard., 1987.
"Inter-industry studies of structure and performance,"
1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
- Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
- Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
- Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
- Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
- Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
- Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2012.
"Can competition reduce quality?,"
NIPE Working Papers
05/2012, NIPE - Universidade do Minho.
- Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2012. "Can competition reduce quality?," Discussion Paper Series in Economics 9/2012, Department of Economics, Norwegian School of Economics.
- Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2014. "Can Competition Reduce Quality?," CESifo Working Paper Series 4629, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.