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Capacity choices and price competition in experimental markets

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  • Anderhub, Vital
  • Güth, Werner
  • Kamecke, Ulrich
  • Normann, Hans-Theo

Abstract

In the heterogeneous experimental oligopoly markets of this paper, sellers first choose capacities and then prices. In equilibrium, capacities should correspond to the Cournot prediction. In the experimental data, given capacities, observed price setting behavior is in general consistent with the theory. Capacities converge above the Cournot level. Sellers rarely manage to cooperate. --

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2001,10.

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Date of creation: 2001
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Handle: RePEc:zbw:sfb373:200110

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References

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  1. Reinhard Selten, 1998. "Multistage Game Models and Delay Supergames," Theory and Decision, Springer, vol. 44(1), pages 1-36, January.
  2. Xiangkang Yin & Yew-Kwang Ng, 1995. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes: A Case with Product Differentiation," Working Papers 1995.23, School of Economics, La Trobe University.
  3. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  4. Muren, Astri, 2000. "Quantity precommitment in an experimental oligopoly market," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 147-157, February.
  5. Selten,Reinhard & Mitzkewitz,Michael & Uhlich,Gerald, . "Duopoly strategies programmed by experienced players," Discussion Paper Serie B 106, University of Bonn, Germany.
  6. Russell Cooper & Douglas V. DeJong & Thomas W. Ross, 1992. "Cooperation without Reputation: Experimental Evidence from Prisoner's Dilemma Games," Papers 0036, Boston University - Industry Studies Programme.
  7. BOCCARD , Nicolas & WAUTHY, Xavier, . "Bertrand competition and Cournot outcomes: futher results," CORE Discussion Papers RP -1474, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Rees, Ray, 1993. "Collusive Equilibrium in the Great Salt Duopoly," Munich Reprints in Economics 3413, University of Munich, Department of Economics.
  9. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
  10. Martin, Stephen & Normann, Hans-Theo & Snyder, Christopher M, 2001. "Vertical Foreclosure in Experimental Markets," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 466-96, Autumn.
  11. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
  12. 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.
  13. Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March.
  14. Stephen Martin, 1999. "Kreps And Scheinkman With Product Differentiation: An Expository Note," CIE Discussion Papers 1999-11, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  15. Davis, Douglas D., 1999. "Advance production and Cournot outcomes: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 59-79, September.
  16. Keser, Claudia, 2000. "Cooperation in symmetric duopolies with demand inertia," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 23-38, January.
  17. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages C80-95, March.
  18. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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Cited by:
  1. Miguel A. Fonseca & Hans-Theo Normann, 2013. "Excess Capacity and Pricing in Bertrand-Edgeworth Markets: Experimental Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(2), pages 199-228, June.
  2. Le Coq, Chloé & Sturluson, Jon Thor, 2012. "Does opponents’ experience matter? Experimental evidence from a quantity precommitment game," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 265-277.
  3. Oechssler, Jorg & Schuhmacher, Frank, 2004. "The limited liability effect in experimental duopoly markets," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 163-184, February.
  4. David Goodwin & Stuart Mestelman, 2002. "Advance Production Duopolies and Posted Prices or Market-Clearing Prices," Department of Economics Working Papers 2002-07, McMaster University.
  5. Goodwin, David & Mestelman, Stuart, 2010. "A note comparing the capacity setting performance of the Kreps-Scheinkman duopoly model with the Cournot duopoly model in a laboratory setting," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 522-525, September.
  6. Andreas Nicklisch, 2012. "Does collusive advertising facilitate collusive pricing? Evidence from experimental duopolies," European Journal of Law and Economics, Springer, vol. 34(3), pages 515-532, December.
  7. Dean V. Williamson & Céline Jullien & Lynne Kiesling & Carine Staropoli, 2006. "Investment Incentives and Market Power: An Experimental Analysis," EAG Discussions Papers 200605, Department of Justice, Antitrust Division.
  8. Sandra Güth & Werner Güth, 2000. "Preemption in Capacity and Price Determination - A Study of Endogenous Timing of Decisions for Homogeneous Markets," CESifo Working Paper Series 309, CESifo Group Munich.
  9. Andreas Nicklisch, 2008. "Semi-collusive advertising and pricing in experimental duopolies," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_25, Max Planck Institute for Research on Collective Goods.

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