IDEAS home Printed from https://ideas.repec.org/a/kap/expeco/v7y2004i3p271-288.html
   My bibliography  Save this article

How Applicable is the Dominant Firm Model of Price Leadership?

Author

Listed:
  • Stephen J. Rassenti

    ()

  • Bart J. Wilson

    ()

Abstract

In this paper, we examine the usefulness of the dominant firm model of price leadership to serve as a benchmark for organizing behavior in laboratory markets. This well established model, whose origins can be traced back over a hundred years, has been recently applied to such landmark antitrust cases as Standard Oil and Alcoa and more recently to the analysis of deregulated markets for electric power. Our results indicate that in posted offer markets the dominant firm quite often produces more than the model's benchmark and sometimes at much greater prices. With sealed offer auction rules and a low elasticity of fringe supply, the dominant firm produces the theoretical output at a price greater than the prediction. However, with a high elasticity of fringe supply, the dominant firm produces more output over a wide range of prices that includes the predicted price.

Suggested Citation

  • Stephen J. Rassenti & Bart J. Wilson, 2004. "How Applicable is the Dominant Firm Model of Price Leadership?," Experimental Economics, Springer;Economic Science Association, vol. 7(3), pages 271-288, October.
  • Handle: RePEc:kap:expeco:v:7:y:2004:i:3:p:271-288
    as

    Download full text from publisher

    File URL: http://journals.kluweronline.com/issn/1386-4157/contents
    Download Restriction: Access to the full text of the articles in this series is restricted.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sefton, Martin & Steinberg, Richard, 1996. "Reward structures in public good experiments," Journal of Public Economics, Elsevier, pages 263-287.
    2. Andreoni, James, 1995. "Cooperation in Public-Goods Experiments: Kindness or Confusion?," American Economic Review, American Economic Association, pages 891-904.
    3. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
    4. R. Andrew Muller & Stuart Mestelman, 1998. "What have we learned from emissions trading experiments?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 225-238.
    5. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
    6. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine.
    7. Palfrey, Thomas R & Prisbrey, Jeffrey E, 1997. "Anomalous Behavior in Public Goods Experiments: How Much and Why?," American Economic Review, American Economic Association, pages 829-846.
    8. R. Isaac & James Walker, 1998. "Nash as an Organizing Principle in the Voluntary Provision of Public Goods: Experimental Evidence," Experimental Economics, Springer;Economic Science Association, vol. 1(3), pages 191-206, December.
    9. Keser, Claudia, 1996. "Voluntary contributions to a public good when partial contribution is a dominant strategy," Economics Letters, Elsevier, vol. 50(3), pages 359-366, March.
    10. Chan, Kenneth S. & Godby, Rob & Mestelman, Stuart & Andrew Muller, R., 2002. "Crowding-out voluntary contributions to public goods," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 305-317, July.
    11. Andreoni, James, 1993. "An Experimental Test of the Public-Goods Crowding-Out Hypothesis," American Economic Review, American Economic Association, pages 1317-1327.
    12. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 1998. "A theoretical analysis of altruism and decision error in public goods games," Journal of Public Economics, Elsevier, pages 297-323.
    13. Andreoni, James, 1993. "An Experimental Test of the Public-Goods Crowding-Out Hypothesis," American Economic Review, American Economic Association, pages 1317-1327.
    14. Marc WILLINGER & Anthony ZIEGELMEYER, 1999. "Non-Cooperative Behavior in a Public Goods Experiment with Interior Solution," Working Papers of BETA 9922, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    15. Holt, Charles A. & Laury, Susan K., 2008. "Theoretical Explanations of Treatment Effects in Voluntary Contributions Experiments," Handbook of Experimental Economics Results, Elsevier.
    16. Brandts, Jordi & Schram, Arthur, 2001. "Cooperation and noise in public goods experiments: applying the contribution function approach," Journal of Public Economics, Elsevier, pages 399-427.
    17. Laury, Susan K. & Holt, Charles A., 2008. "Voluntary Provision of Public Goods: Experimental Results with Interior Nash Equilibria," Handbook of Experimental Economics Results, Elsevier.
    18. Palfrey, Thomas R & Prisbrey, Jeffrey E, 1997. "Anomalous Behavior in Public Goods Experiments: How Much and Why?," American Economic Review, American Economic Association, pages 829-846.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Attila Tasnádi, 2010. "Quantity-setting games with a dominant firm," Journal of Economics, Springer, pages 251-266.
    2. Ahmad Reza Saboori Memar, 2013. "Profitable Entry into an Unprofitable Market," MAGKS Papers on Economics 201306, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer;Economic Science Association, vol. 12(3), pages 289-317, September.
    4. Russell Pittman & Maria Tineo, 2006. "Abuse of Dominance Enforcement under Latin American Competition Laws," Chapters,in: Handbook of Research in Trans-Atlantic Antitrust, chapter 10 Edward Elgar Publishing.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:expeco:v:7:y:2004:i:3:p:271-288. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.