Concentration and Competition: An Experiment
AbstractRecent theoretical research on oligopolistic competition suggests that prices may increase when more firms compete in a market. However, this finding is based on comparative-static analyses of static models, which overlook the possibility that sellers may be able to charge supra-competitive prices in a dynamic setting and that this is more likely to be sustained with fewer competitors. Previous laboratory evidence corroborating the comparative-static result was generated using a random matching protocol which retains much of the one-shot character of the theory. In a new experiment we reexamine the number effect in repeated markets and find that duopolists now post substantially higher prices, while average prices in quadropolies remain very similar. As a result, the predicted effect is not observed, and towards the end the reverse effect is observed.
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Bibliographic InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2005-06.
Date of creation: Apr 2005
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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Web page: http://www.nottingham.ac.uk/economics/cedex/
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Market Concentration; Experiments; Tacit Collusion;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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