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Spatial Competition with Three Firms: An Experimental Study

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  • Collins, Richard
  • Sherstyuk, Katerina

Abstract

This article reports the results of an experimental study of the three firm location problem. We compare the subjects' behavior in the experiments with the symmetric mixed strategy Nash equilibrium calculated by Shaked. Overall, the findings are consistent with the equilibrium prediction. However, the subjects' locations were significantly more dispersed than predicted by the theory. Three alternative explanations of this phenomenon--inexperience, approximate equilibrium behavior and risk aversion--are suggested and evaluated for their predictive power. Special attention is paid to risk aversion. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Collins, Richard & Sherstyuk, Katerina, 2000. "Spatial Competition with Three Firms: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 38(1), pages 73-94, January.
    • Handle: RePEc:oup:ecinqu:v:38:y:2000:i:1:p:73-94
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    Cited by:

    1. Michiel Bliemer & Laurent Denant-Boemont & Sabrina Hammiche & David Hensher & Corinne Mulley, 2020. "Urban Costs and the Spatial Structure of Cities: A Laboratory Experiment," Working Papers halshs-02440516, HAL.
    2. Hanaki, Nobuyuki & Tanimura, Emily & Vriend, Nicolaas J., 2019. "The Principle of Minimum Differentiation revisited: Return of the median voter," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 145-170.
    3. Tsakas, Nikolas & Xefteris, Dimitrios, 2018. "Electoral competition with third party entry in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 121-134.
    4. Morgan, John & Orzen, Henrik & Sefton, Martin, 2006. "A laboratory study of advertising and price competition," European Economic Review, Elsevier, vol. 50(2), pages 323-347, February.
    5. Orzen, Henrik & Sefton, Martin, 2008. "An experiment on spatial price competition," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 716-729, May.
    6. Paolo Crosetto & Alexia Gaudeul, 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Jena Economics Research Papers 2014-026, Friedrich-Schiller-University Jena.
    7. Morgan, John & Orzen, Henrik & Sefton, Martin, 2006. "An experimental study of price dispersion," Games and Economic Behavior, Elsevier, vol. 54(1), pages 134-158, January.
    8. Fuhai Hong & Larry Karp, 2014. "International Environmental Agreements with Endogenous or Exogenous Risk," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(3), pages 365-394.
    9. 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.
    10. Vera Hofer & Klaus Ladner, 2006. "Positioning of new brands in an experiment," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 14(4), pages 435-454, December.
    11. David J. Butler, 2005. "A Reality Check for Game Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 137-147, February.
    12. Dimitrios Xefteris, 2018. "Candidate valence in a spatial model with entry," Public Choice, Springer, vol. 176(3), pages 341-359, September.
    13. 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.
    14. Tomasz Kopczewski & Maciej Pogorzelski, 2009. "Influence of the size of the company on developing of decision-making process of the enterprise concerning the spatial location," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 23.
    15. Erez Hatna & Itzhak Benenson, 2007. "Building a City in Vitro: The Experiment and the Simulation Model," Environment and Planning B, , vol. 34(4), pages 687-707, August.
    16. Andrea Mangani & Paolo Patelli, 2002. "The Max-Min Principle of Product Differentiation: An Experimental Analysis," LEM Papers Series 2002/05, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    17. 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.
    18. 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.
    19. Camacho-Cuena, Eva & Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Sabater-Grande, Gerardo, 2005. "Buyer-seller interaction in experimental spatial markets," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 89-108, March.
    20. Curtis Kephart & Daniel Friedman, 2015. "Hotelling revisits the lab: equilibration in continuous and discrete time," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(2), pages 132-145, December.
    21. Björn Frank, 2014. "Laboratory Evidence on Face-to-Face," International Regional Science Review, , vol. 37(4), pages 411-435, October.
    22. Jan Potters & Sigrid Suetens, 2013. "Oligopoly Experiments In The Current Millennium," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 439-460, July.
    23. Hanaki, Nobuyuki & Tanimura, Emily & Vriend, Nicolaas J., 2019. "The Principle of Minimum Differentiation revisited: Return of the median voter," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 145-170.
    24. Zhiyong Huang, 2011. "The mixed strategy equilibrium of the three-firm location game with discrete location choices," Economics Bulletin, AccessEcon, vol. 31(3), pages 2109-2116.

    More about this item

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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