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An Experimental Examination of Market Concentration and Capacity Effects on Price Competition

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Listed:
  • Ewing Bradley T.

    (Texas Tech University)

  • Kruse Jamie B

    (East Carolina University and National Oceanic Atmospheric Administration)

Abstract

This research examines the comparative impact of market concentration and excess capacity on the performance of posted-offer experimental markets. We report the results of panel data analysis of 35 markets with or without excess capacity involving two, three, or four sellers. We find that sellers can sustain higher prices in more concentrated laboratory markets. Higher levels of excess capacity lead to lower laboratory market prices supporting the notion that excess capacity reduces the ability of firms to collude as opposed to the view that excess capacity is a trigger strategy punishment that sustains collusion.

Suggested Citation

  • Ewing Bradley T. & Kruse Jamie B, 2010. "An Experimental Examination of Market Concentration and Capacity Effects on Price Competition," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 5(1), pages 1-16, April.
  • Handle: RePEc:bpj:jbvela:v:5:y:2010:i:1:n:3
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    References listed on IDEAS

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    1. Jean-Pierre Benoit & Vijay Krishna, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 23-35.
    2. 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.
    3. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-541, August.
    4. 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.
    5. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 371-382.
    6. Douglas D. Davis & Charles A. Holt, 1992. "Introduction to Experimental Economics," Introductory Chapters,in: Experimental Economics Princeton University Press.
    7. Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-372, March.
    8. Holt, Charles A, 1985. "An Experimental Test of the Consistent-Conjectures Hypothesis," American Economic Review, American Economic Association, vol. 75(3), pages 314-325, June.
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