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Simultaneous and sequential price competition on heterogeneous duopoly markets: Experimental evidence

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  • Kübler, D.
  • Müller, W.

    (Tilburg University)

Abstract

We investigate simultaneous and sequential price competition in duopoly markets with differentiated products. In both markets symmetric firms are repeatedly and randomly matched. The strategy method is used to elicit behavior in the sequential market. We find that average leader prices in the sequential market are higher than average prices in the simultaneous market, just as predicted by the theory, whereas average follower prices are not above average prices in the simultaneous market, in contrast to the theoretical prediction. Furthermore, second movers gain from the sequential structure in comparison to simultaneous-move markets whereas first movers do not. As in theory, there is a significant first-mover disadvantage when firms decide sequentially. Finally, to assess the robustness of our findings, we report the results of control treatments varying the matching scheme and the mode of eliciting choices (strategy method vs. standard sequential play). --

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-112518.

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Date of creation: 2002
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Publication status: Published in International Journal of Industrial Organization (2002) v.20, p.1437-1460
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-112518

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Web page: http://www.tilburguniversity.edu/

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  1. Dufwenberg, Martin & Gneezy, Uri, 1998. "Price Competition and Market Concentration: An Experimental Study," Working Paper Series 1998:8, Uppsala University, Department of Economics.
  2. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2000. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 39-57, January.
  3. C. Monica Capra & Jacob K Goeree & Rosario Gomez & Charles A Holt, 2002. "Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 613-636, August.
  4. Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
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  15. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
  16. Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Suits, Daniel B, 1984. "Dummy Variables: Mechanics v. Interpretation," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 177-80, February.
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Citations

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Cited by:
  1. Kübler, D. & Müller, W. & Normann, H.T., 2003. "Job Market Signalling and Screening: An Experimental Comparison," Discussion Paper 2003-124, Tilburg University, Center for Economic Research.
  2. Guth, Werner & Muller, Wieland & Spiegel, Yossi, 2006. "Noisy leadership: An experimental approach," Games and Economic Behavior, Elsevier, vol. 57(1), pages 37-62, October.
  3. Orzen, Henrik & Sefton, Martin, 2008. "An experiment on spatial price competition," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 716-729, May.
  4. Lisa Bruttel & Urs Fischbacher, 2010. "Taking the initiative. What characterizes leaders?," TWI Research Paper Series 61, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  5. Peeters, Ronald & Strobel, Martin, 2009. "Pricing behavior in asymmetric markets with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 24-32, January.
  6. Jordi Brandts & Gary Charness, 2011. "The strategy versus the direct-response method: a first survey of experimental comparisons," Experimental Economics, Springer, vol. 14(3), pages 375-398, September.
  7. Peeters,Ronald & Strobel,Martin, 2005. "Differentiated Product Markets: An Experimental Test of Two Equilibrium Concepts," Research Memorandum 020, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  8. Verena Utikal & Urs Fischbacher, 2009. "On the attribution of externalities," TWI Research Paper Series 46, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  9. Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer, vol. 12(3), pages 289-317, September.
  10. Argenton, Cédric & Müller, Wieland, 2012. "Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 508-517.

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