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Contestability in Real-Time Experimental Flow Markets

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  • Edward L. Millner
  • Michael D. Pratt
  • Robert J. Reilly

Abstract

This article reports the results from laboratory markets using a new trading institution in which sellers post offers to sell flows of output in real time. We use the new institution to examine the outcomes in natural monopoly experimental markets. No. stable price outcomes were observed in markets contestable by two firms, a finding that is consistent with the contestable markets hypothesis, but in conflict with assertions commonly made by those advancing the theory's role in policy formation. The average efficiency of markets contestable by two firms, while greater than that of monopoly markets protected from entry, was significantly less than that associated with the sustainable equilibrium.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 21 (1990)
Issue (Month): 4 (Winter)
Pages: 584-599

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Handle: RePEc:rje:randje:v:21:y:1990:i:winter:p:584-599

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Cited by:
  1. Elberfeld, Walter & Wolfstetter, Elmar, 1999. "A dynamic model of Bertrand competition with entry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 17(4), pages 513-525, May.
  2. Douglas D. Davis & Oleg Korenok, 2009. "Posted Offer Markets In Near-Continuous Time: An Experimental Investigation," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 47(3), pages 449-466, 07.
  3. Zizzo, Daniel John, 2013. "Claims and confounds in economic experiments," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 93(C), pages 186-195.
  4. Steve Buchheit & Nick Feltovich, 2011. "Experimental Evidence Of A Sunk‐Cost Paradox: A Study Of Pricing Behavior In Bertrand–Edgeworth Duopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 317-347, 05.

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