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Advance Production, Inventories and Market Power: An Experimental Investigation

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  • Douglas D. Davis

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

Abstract

This paper reports an experiment conducted to assess the effects of alterations in production conditions and product durability on market power in Bertrand-Edgeworth duopolies. Experiment results indicate that advance production increases market power in the sense that mean transaction prices increase relative to static Nash equilibrium predictions for a baseline market. In a similar way, a simple inventory option reduces market power. We also find that both advance production and inventory carryover undermine a strong tendency toward tacit collusion observed in our baseline duopoly markets.

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File URL: http://www.people.vcu.edu/~dddavis/papers/New%20Advance%20Production/AP_INV_DAVIS020311.pdf
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File URL: http://www.people.vcu.edu/~dddavis/papers/New%20Advance%20Production/AP_INV_APPENDICES.pdf
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File URL: http://www.people.vcu.edu/~dddavis/papers/New%20Advance%20Production/DAVIS_020311_INSTRUCTIONS.pdf
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Bibliographic Info

Paper provided by VCU School of Business, Department of Economics in its series Working Papers with number 1001.

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Length: 27 pages
Date of creation: Feb 2010
Date of revision: Jan 2011
Handle: RePEc:vcu:wpaper:1001

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Related research

Keywords: Experiments; Bertrand-Edgeworth Competition; Advance Production; Inventory Carryover;

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Cited by:
  1. Daniel Cracau & Abdolkarim Sadrieh, 2014. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels," FEMM Working Papers 140003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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