Advanced Search
MyIDEAS: Login to save this paper or follow this series

Price competition under cost uncertainty: A laboratory analysis

Contents:

Author Info

  • Klaus Abbink
  • Jordi Brandts

    ()

Abstract

We study the relation between the number of firms and price-cost margins under price competition with uncertainty about competitors' costs. We present results of an experiment in which two, three and four identical firms repeatedly interact in this environment. In line with the theoretical prediction, market prices decrease with the number of firms, but on average stay above marginal costs. Pricing is less aggressive in duopolies than in triopolies and tetrapolies. However, independently from the number of firms, pricing is more aggressive than in the theoretical equilibrium. Both the absolute and the relative surpluses increase with the number of firms. Total surplus is close to the equilibrium level, since enhanced consumer surplus through lower prices is counteracted by occasional displacements of the most efficient firm in production.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://pareto.uab.es/wp/2002/55002.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 550.02.

as in new window
Length: 18
Date of creation: 01 Nov 2002
Date of revision:
Handle: RePEc:aub:autbar:550.02

Contact details of provider:
Postal: 08193, Bellaterra, Barcelona
Phone: 34 93 592 1203
Fax: +34 93 542-1223
Email:
Web page: http://pareto.uab.cat
More information through EDIRC

Related research

Keywords: Laboratory experiments; industrial organisation; oligopoly; price competition;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
  2. Robert Moir, 1998. "A Monte Carlo Analysis of the Fisher Randomization Technique: Reviving Randomization for Experimental Economists," Experimental Economics, Springer, vol. 1(1), pages 87-100, June.
  3. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
  4. Dufwenberg, M. & Gneezy, U., 1998. "Price competition and market concentration: An experimental study," Discussion Paper 1998-27, Tilburg University, Center for Economic Research.
  5. Wolfstetter, Elmar, 1996. " Auctions: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 10(4), pages 367-420, December.
  6. Dufwenberg, Martin & Gneezy, Uri & Goeree, Jacob K. & Nagel, Rosemarie, 2002. "Price Floors and Competition," Research Papers in Economics 2002:13, Stockholm University, Department of Economics.
  7. Reinhard Selten & Jose Apesteguia, 2002. "Experimentally Observed Imitation and Cooperation in Price Competition on the Circle," Bonn Econ Discussion Papers bgse19_2002, University of Bonn, Germany.
  8. Offerman, T.J.S. & Potters, J.J.M. & Sonnemans, J., 2002. "Imitation and belief learning in an oligopoly experiment," Open Access publications from Tilburg University urn:nbn:nl:ui:12-91663, Tilburg University.
  9. Plott, Charles R. & Smith, Vernon L., . "An Experimental Examination of Two Exchange Institutions," Working Papers 83, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
  11. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Learning in Cournot Oligopoly - An Experiment," Game Theory and Information 9707009, EconWPA, revised 22 Jul 1997.
  12. Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
  13. Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March.
  14. Douglas D. Davis & Charles A. Holt, 1994. "Market Power and Mergers in Laboratory Markets with Posted Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 467-487, Autumn.
  15. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
  16. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jordi Brandts & Pablo Guillen, 2004. "Collusion and Fights in an Experiment with Price-Setting Firms and Production in Advance," Working Papers 141, Barcelona Graduate School of Economics.
  2. Goeree, Jacob K. & Offerman, Theo & Sloof, Randolph, 2005. "Demand Reduction and Pre-emptive Bidding in Multi-Unit License Auctions," CEPR Discussion Papers 4899, C.E.P.R. Discussion Papers.
  3. Mulder, Machiel & Haan, Marco A. & Dijkstra, Peter T., 2014. "Industry structure and collusion with uniform yardstick competition: theory and experiments," Research Report 14010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  4. Selten, Reinhard & Apesteguia, Jose, 2005. "Experimentally observed imitation and cooperation in price competition on the circle," Games and Economic Behavior, Elsevier, vol. 51(1), pages 171-192, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:aub:autbar:550.02. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.