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Behavioral Convergence Properties of Cournot and Bertrand Markets: An Experimental Analysis

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  • Douglas D. Davis

    () (Department of Economics, VCU School of Business)

Abstract

This paper reports an experiment that examines the relative convergence properties of differentiated-product Cournot and Bertrand oligopolies. Overall, Bertrand markets tend to converge to Nash equilibrium predictions more quickly and more completely than Cournot markets. Further, when products are close substitutes Bertrand markets respond more quickly to an announced nominal shock. As products become weaker substitutes, however, an increased tendency for tacit collusion degrades convergence in Bertrand markets. This effect is particularly pronounced following a nominal shock. Our results suggest that in an oligopoly context variations in decision error costs dominate a 'Strategic Substitutes Effect' isolated in previous experimental research.

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File URL: http://www.people.vcu.edu/~dddavis/working%20papers/strategic%20subs%20&%20comps/BC_Convergence012911.pdf
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Bibliographic Info

Paper provided by VCU School of Business, Department of Economics in its series Working Papers with number 0808.

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Length: 40 pages
Date of creation: Oct 2008
Date of revision: Jan 2011
Handle: RePEc:vcu:wpaper:0808

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Keywords: Experiments; Strategic Substitutes and Strategic Complements; Bertrand and Cournot Markets;

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  1. John Haltiwanger & Michael Waldman, 1983. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," UCLA Economics Working Papers 303, UCLA Department of Economics.
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  6. Davis, Douglas, 2009. "Pure numbers effects, market power, and tacit collusion in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 475-488, October.
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  13. Christoph Engel, 2006. "How Much Collusion. A Meta-Analysis On Oligopoly Experiments," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_27, Max Planck Institute for Research on Collective Goods.
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Cited by:
  1. Lisa Anderson & Beth Freeborn & Jason Hulbert, 2012. "Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment," Review of Industrial Organization, Springer, vol. 40(1), pages 37-50, February.

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