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Price Competition Between Teams

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Author Info
Gary Bornstein ()
Uri Gneezy

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Abstract

This study uses an experimental approach to examine whether markets are sensitive to the internal incentive structure of the competitors. Toward this goal, we modeled the competitors in a price competition duopoly game as three-player teams. Each player simultaneously declares a bid (price) and the team whose total bid was lower won the competition and was paid accordingly. The losing team was paid nothing, and in case of a tie, each team was paid half its price. This duopoly game was studied under two conditions; a cooperative treatment in which the team's profit was divided equally amongst its members and a non-cooperative one in which each individual member was paid her own bid. Whereas the Nash equilibrium is for each player in either treatment to demand the minimal price possible, we predicted that convergence to the competitive price would be much faster in the cooperative treatment than in the non-cooperative one. The experimental results firmly confirmed this prediction. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1016312624038
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Publisher Info
Article provided by Springer in its journal Experimental Economics.

Volume (Year): 5 (2002)
Issue (Month): 1 (June)
Pages: 29-38
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Handle: RePEc:kap:expeco:v:5:y:2002:i:1:p:29-38

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Web page: http://www.springerlink.com/link.asp?id=102888

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Related research
Keywords: price competition; team games;

References listed on IDEAS
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.:

  1. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May. [Downloadable!] (restricted)
  2. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September. [Downloadable!] (restricted)
  3. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
  4. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. José Apesteguia & Martin Dufwenberg & Reinhard Selten, 2003. "Blowing the Whistle," Bonn Econ Discussion Papers bgse9_2003, University of Bonn, Germany. [Downloadable!]
    Other versions:
  2. Gary Bornstein & David V. Budescu & Tamar Kugler & Reinhard Selten, 2002. "Repeated Price Competition Between Individuals and Between Teams," Discussion Paper Series dp303, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
    Other versions:
  3. Roland Kirstein & Annette Kirstein, 2007. "Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies," FEMM Working Papers 07004, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
    Other versions:
  4. Philippe Raab & Burkhard C. Schipper, 2004. "Cournot Competition between Teams: An Experimental Study," Bonn Econ Discussion Papers bgse13_2004, University of Bonn, Germany. [Downloadable!]
    Other versions:
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