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Price increasing competition? Experimental evidence

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  • Deck, Cary
  • Gu, Jingping

Abstract

Economic intuition suggests competition lowers prices. However, recent theoretical work reveals a monopolist may prefer to charge a lower price than a seller facing a competitor with a differentiated product depending upon the joint distribution of buyer values for the products. We explore this relationship using controlled laboratory experiments. Our results indicate price increasing competition is rare due in part to overly intense competition, but after controlling for such behavioral reactions, we find some support for the model. We also explore pricing dynamics and find that sellers are more sensitive to their rivals when buyer values are positively correlated.

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  • Deck, Cary & Gu, Jingping, 2012. "Price increasing competition? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 730-740.
    • Handle: RePEc:eee:jeborg:v:84:y:2012:i:3:p:730-740
    DOI: 10.1016/j.jebo.2012.09.015
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    2. Torsten J. Gerpott & Jan Berends, 2022. "Competitive pricing on online markets: a literature review," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(6), pages 596-622, December.

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    More about this item

    Keywords

    Product differentiation; Pricing dynamics; Market structure; Experiments;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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