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Market Power and Mergers in Laboratory Markets with Posted Prices

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  • Douglas D. Davis
  • Charles A. Holt

Abstract

In this article, we use laboratory methods to evaluate determinants of supracompetitive pricing. The experiment involves three treatments, each with the same market supply, demand, and competitive price. In the baseline treatment, capacity is divided among five sellers so that the competitive price is a Nash equilibrium. Market power is created in a second treatment by reallocating capacity among the sellers. This market power raises observed prices in all sessions. In a third treatment, the three smallest sellers are merged in a way that holds market power constant. The consolidation has little residual effect on prices.

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Bibliographic Info

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

Volume (Year): 25 (1994)
Issue (Month): 3 (Autumn)
Pages: 467-487

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Handle: RePEc:rje:randje:v:25:y:1994:i:autumn:p:467-487

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Cited by:
  1. Cherry, Todd L. & Kallbekken, Steffen & Kroll, Stephan & McEvoy, David M., 2013. "Cooperation in and out of markets: An experimental comparison of public good games and markets with externalities," Economics Letters, Elsevier, vol. 120(1), pages 93-96.
  2. Douglas D. Davis, 2006. "Pure Numbers Effects, Market Power, and Tacit Collusion in Posted Offer Markets," Working Papers 0603, VCU School of Business, Department of Economics, revised Jan 2009.
  3. Douglas D. Davis & Korenok Oleg & Robert Reilly, 2007. "Re-matching, Information and Sequencing Effects in Posted Offer Markets," Working Papers 0701, VCU School of Business, Department of Economics, revised Oct 2007.
  4. Jordi Brandts & Klaus Abbink, 2003. "Price competition under cost uncertainty: A laboratory analysis," Working Papers 58, Barcelona Graduate School of Economics.
  5. Jordi Brandts & Klaus Abbink, 2004. "24," Levine's Bibliography 122247000000000073, UCLA Department of Economics.
    • Klaus Abbink & Jordi Brandts, 0000. "24," Working Papers 62, Barcelona Graduate School of Economics.
    • Klaus Abbink & Jordi Brandts, 2002. "24," UFAE and IAE Working Papers 523.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June.
  7. Antoine Billot & Chantal Marlats, 2009. "Préferences psychologiques et nouvelle économie politique," PSE Working Papers halshs-00566146, HAL.
  8. Capra, C. Monica & Goeree, Jacob K. & Gomez, Rosario & Holt, Charles A., 2000. "Predation, asymmetric information and strategic behavior in the classroom: an experimental approach to the teaching of industrial organization," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 205-225, January.

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