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Collusion and Fights in an Experiment with Price-Setting Firms and Production in Advance

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  • Jordi Brandts
  • Pablo Guillen

Abstract

We present results from 50-round market experiments in which firms decide repeatedly both on price and quantity of a completely perishable good. Each firm has capacity to serve the whole market. The stage game does not have an equilibrium in pure strategies. We run experiments for markets with two and three identical firms. Firms tend to cooperate to avoid fights, but when they fight bankruptcies are rather frequent. On average, pricing behavior is closer to that for pure quantity than for pure price competition and price and efficiency levels are higher for two than for three firms. Consumer surplus increases with the number of firms, but unsold production leads to higher efficiency losses with more firms. Over time prices tend to the highest possible one for markets both with two and three firms.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 141.

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Date of creation: Jul 2004
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Handle: RePEc:bge:wpaper:141

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Keywords: Experiments; Oligopoly; Collusion;

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References

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  1. 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, Tilburg University urn:nbn:nl:ui:12-91663, Tilburg University.
  2. Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2003. "Competition with Forward Contracts: A Laboratory Analysis Motivated by Electricity Market Design," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 581.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Oliver Hart, 1982. "Reasonable Conjectures," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 61, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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  5. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, Econometric Society, vol. 65(3), pages 517-556, May.
  6. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 571-99, May.
  7. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 18(1), pages 7-22, January.
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  10. Vives, Xavier, 1993. "Edgeworth and modern oligopoly theory," European Economic Review, Elsevier, Elsevier, vol. 37(2-3), pages 463-476, April.
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  12. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers, University of Bonn, Germany bgse12_2001, University of Bonn, Germany.
  13. Jordi Brandts & Klaus Abbink, 2003. "Price competition under cost uncertainty: A laboratory analysis," Working Papers 58, Barcelona Graduate School of Economics.
  14. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, Elsevier, vol. 63(1), pages 1-31, May.
  15. Mestelman, Stuart & Welland, Douglas, 1988. "Advance Production in Experimental Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(4), pages 641-54, October.
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Cited by:
  1. Tibor Neugebauer, 2007. "Bid and price effects of increased competition in the first-price auction: experimental evidence," LSF Research Working Paper Series, Luxembourg School of Finance, University of Luxembourg 07-17, Luxembourg School of Finance, University of Luxembourg.

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