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Advance Production, Inventories, And Market Power: An Experimental Investigation

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  • DOUGLAS D. DAVIS

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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  • Douglas D. Davis, 2013. "Advance Production, Inventories, And Market Power: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 941-958, January.
    • Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:941-958
    DOI: j.1465-7295.2011.00388.x
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    Cited by:

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    4. Daniel Cracau & Benjamin Franz, 2014. "An experimental test of the mixed strategy equilibrium in price-quantity oligopolies," Economics Bulletin, AccessEcon, vol. 34(3), pages 1369-1380.
    5. Tasnádi, Attila, 2020. "Production in advance versus production to order: Equilibrium and social surplus," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 11-18.

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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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