Focal prices and price cycles in an alternating price duopoly experiment
AbstractIn the infinite horizon alternating price setting duopoly of Maskin and Tirole (1988), a focal price equilibrium and an equilibrium consisting of Edgeworth cycles coexist. In this study we investigate which of these two equilibria is more likely to emerge by means of a laboratory experiment. In 20 out of 27 observations the focal price equilibrium emerges, while price cycles are observed in only one observation. Furthermore, we study the duopoly in case of a long but finite horizon. Although the corresponding unique subgame-perfect equilibrium consists of Edgeworth cycles, experimentally we still observe a focal price in the majority of the observations. Nevertheless, price cycles are observed far more often than for the infinite horizon setting.
Download InfoIf 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.
Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 021.
Date of creation: 2008
Date of revision:
Contact details of provider:
Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-05 (All new papers)
- NEP-EXP-2008-09-05 (Experimental Economics)
- NEP-GTH-2008-09-05 (Game Theory)
- NEP-IND-2008-09-05 (Industrial Organization)
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.:
- Pedro Dal B�, 2005.
"Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games,"
American Economic Review,
American Economic Association, vol. 95(5), pages 1591-1604, December.
- Pedro Dal Bó, 2002. "Cooperation Under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games," Working Papers 2002-20, Brown University, Department of Economics.
- Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March.
- Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997.
"Duopoly Strategies Programmed by Experienced Players,"
Econometric Society, vol. 65(3), pages 517-556, May.
- Selten,Reinhard & Mitzkewitz,Michael & Uhlich,Gerald, . "Duopoly strategies programmed by experienced players," Discussion Paper Serie B 106, University of Bonn, Germany.
- Eckert, Andrew, 2003. "Retail price cycles and the presence of small firms," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 151-170, February.
- Edward J Green & Robert H Porter, 1997.
"Noncooperative Collusion Under Imperfect Price Information,"
Levine's Working Paper Archive
1147, David K. Levine.
- Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
- Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
- Michael D. Noel, 2007. "Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 324-334, May.
- Matthew S. Lewis, 2009. "Temporary Wholesale Gasoline Price Spikes Have Long-Lasting Retail Effects: The Aftermath of Hurricane Rita," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 581-605, 08.
- Leola Ross, 1997. "When Will an Airline Stand Its Ground? An Analysis of Fare Wars," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 4(2), pages 109-127.
- Cason, T. & Friedman, D. & Wagener, F.O.O., 2003.
"The dynamics of price dispersion, or Edgeworth variations,"
CeNDEF Working Papers
03-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Cason, Timothy N. & Friedman, Daniel & Wagener, Florian, 2005. "The dynamics of price dispersion, or Edgeworth variations," Journal of Economic Dynamics and Control, Elsevier, vol. 29(4), pages 801-822, April.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Leola B. Ross, . "When Will an Airline Stand Its Ground? An Analysis of Fare Wars," Working Papers 9703, East Carolina University, Department of Economics.
- Meghan R. Busse, 2002. "Firm Financial Condition and Airline Price Wars," Yale School of Management Working Papers ysm281, Yale School of Management.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen).
If references are entirely missing, you can add them using this form.