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Capacity Choices and Price Competition in Experimental Markets

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  • Vital Anderhub
  • Werner Güth

    ()

  • Ulrich Kamecke

    ()

  • Hans-Theo Normann

    ()

Abstract

We report on experimental duopoly markets with heterogeneous goods. In these markets, sellers first choose capacities and then prices. While capacities remain fixed for either five or ten periods, prices have to be chosen in every period. The experiments starts with two sets of exogenously predetermined capacities. Independently of the distribution of capacities is, a unique pure-strategy in prices is subgame perfect. In equilibrium, capacities should correspond to the Cournot prediction. Given capacities, price-setting behavior is in general consistent with the theory. Average capacities converge above the Cournot level. Capacities converge at the industry level but are somewhat dispersed. Sellers rarely manage to cooperate. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Vital Anderhub & Werner Güth & Ulrich Kamecke & Hans-Theo Normann, 2003. "Capacity Choices and Price Competition in Experimental Markets," Experimental Economics, Springer;Economic Science Association, vol. 6(1), pages 27-52, June.
  • Handle: RePEc:kap:expeco:v:6:y:2003:i:1:p:27-52
    DOI: 10.1023/A:1024248608752
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Wenzel, Tobias & Normann, Hans-Theo, 2015. "Shrouding add-on information: an experimental study," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113149, Verein für Socialpolitik / German Economic Association.
    2. Güth, Sandra & Güth, Werner, 1998. "Preemption in capacity and price determination: A study of endogenous timing of decisions for homogeneous markets," SFB 373 Discussion Papers 1998,100, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    3. 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.
    4. Jacobs Martin, 2016. "Number of Firms, Rationing, Matching, and Knowledge: A Comprehensive Study of Variations in Experimental Kreps–Scheinkman Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1273-1319, September.
    5. David Goodwin & Stuart Mestelman, 2002. "Advance Production Duopolies and Posted Prices or Market-Clearing Prices," Department of Economics Working Papers 2002-07, McMaster University.
    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. Orland, Andreas & Selten, Reinhard, 2016. "Buyer power in bilateral oligopolies with advance production: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 31-42.
    8. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2015. "Do buyer groups facilitate collusion?," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 72-84.
    9. 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.
    10. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2014. "Do buyer groups facilitate collusion?," DICE Discussion Papers 74 [rev.], University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Andreas Nicklisch, 2008. "Semi-collusive advertising and pricing in experimental duopolies," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_25, Max Planck Institute for Research on Collective Goods.
    12. repec:oup:jcomle:v:3:y:2007:i:4:p:491-549. is not listed on IDEAS
    13. 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.
    14. Le Coq, Chloé & Sturluson, Jon-Thor, 2003. "Do Opponents' Experience Matter? Experimental Evidence from a Quantity Precommitment Game," SSE/EFI Working Paper Series in Economics and Finance 531, Stockholm School of Economics, revised 10 Nov 2011.
    15. 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.
    16. Jacobs, Martin, 2016. "Number of firms, rationing, matching, and knowledge: A comprehensive study of variations in experimental Kreps-Scheinkman markets," Economics Working Papers 2016-02, Christian-Albrechts-University of Kiel, Department of Economics.
    17. Christoph Engel, 2007. "How Much Collusion? A Meta-Analysis Of Oligopoly Experiments," Journal of Competition Law and Economics, Oxford University Press, vol. 3(4), pages 491-549.

    More about this item

    Keywords

    Bertrand-Edgeworth; Cournot; experiments;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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