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Theory and Experiments on Spatial Competition

Author

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  • Brown-Kruse, Jamie
  • Cronshaw, Mark B
  • Schenk, David J

Abstract

The authors present theoretical and experimental results on spatial competition between two firms. Firms choose locations simultaneously along a line representing a linear market. Identical consumers with nonincreasing demand functions are uniformly distributed along this line. The authors solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor. The set of equilibria found includes both competitive and collusive payoffs. In laboratory experiments in which the final period was unknown to the players in advance, the authors observed both competitive and collusive outcomes. Nonbinding communication led to collusion. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Brown-Kruse, Jamie & Cronshaw, Mark B & Schenk, David J, 1993. "Theory and Experiments on Spatial Competition," Economic Inquiry, Western Economic Association International, vol. 31(1), pages 139-165, January.
  • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:1:p:139-65
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    Citations

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    Cited by:

    1. Brown Kruse, Jamie & Schenk, David J., 2000. "Location, cooperation and communication: An experimental examination," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 59-80, January.
    2. Wilfred Amaldoss & Chuan He, 2016. "Does Informative Advertising Increase Market Price? An Experimental Investigation," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 3(2), pages 63-80, June.
    3. Tomasz Kopczewski & Maciej Pogorzelski, 2009. "Influence of the size of the company on developing of decision-making process of the enterprise concerning the spatial location," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 23.
    4. Marks, Ulf G. & Albers, Sönke, 1995. "Experiments in competitive product positioning: An equilibrium analysis," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 364, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    5. Orzen, Henrik & Sefton, Martin, 2008. "An experiment on spatial price competition," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 716-729, May.
    6. Roy, Nilanjan, 2017. "Action revision, information and collusion in an experimental duopoly market," MPRA Paper 77033, University Library of Munich, Germany.
    7. Andrea Mangani & Paolo Patelli, 2002. "The Max-Min Principle of Product Differentiation: An Experimental Analysis," LEM Papers Series 2002/05, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Waichman, Israel & Requate, Till & Siang, Ch'ng Kean, 2010. "Pre-play communication in Cournot competition: An experiment with students and managers," Economics Working Papers 2010-09, Christian-Albrechts-University of Kiel, Department of Economics.
    9. Iván Barreda-Tarrazona & Aurora García-Gallego & Nikolaos Georgantzis & Nicholas Ziros, 2015. "Market games as social dilemmas," University of Cyprus Working Papers in Economics 07-2015, University of Cyprus Department of Economics.
    10. Aurélie Bonein & Stéphane Turolla, 2017. "Spatial competition with demand uncertainty: A laboratory experiment," Working Papers SMART - LERECO 17-12, INRA UMR SMART-LERECO.
    11. Vera Hofer & Klaus Ladner, 2006. "Positioning of new brands in an experiment," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 14(4), pages 435-454, December.
    12. Borenstein, Severin & Netz, Janet, 1999. "Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 611-640, July.
    13. Barreda-Tarrazona, Iván & García-Gallego, Aurora & Georgantzís, Nikolaos & Andaluz-Funcia, Joaquín & Gil-Sanz, Agustín, 2011. "An experiment on spatial competition with endogenous pricing," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 74-83, January.
    14. Camacho-Cuena, Eva & Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Sabater-Grande, Gerardo, 2005. "Buyer-seller interaction in experimental spatial markets," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 89-108, March.
    15. Kwasnica, Anthony M., 2000. "The choice of cooperative strategies in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 323-346, July.
    16. Capra, C. Monica & Goeree, Jacob K. & Gomez, Rosario & Holt, Charles A., 2000. "Predation, asymmetric information and strategic behavior in the classroom: an experimental approach to the teaching of industrial organization," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 205-225, January.
    17. Oscar Molina Tejerina, 2004. "Precios predatorios: Una revisión teórica y evidencia experimental," Investigación & Desarrollo 0104, Universidad Privada Boliviana, revised Mar 2004.
    18. Waichman, Israel & Requate, Till & Siang, Ch’ng Kean, 2014. "Communication in Cournot competition: An experimental study," Journal of Economic Psychology, Elsevier, vol. 42(C), pages 1-16.
    19. Spencer, Michael A. & Shogren, Jason F., 2000. "Protocol for inexperienced Coasean bargainers confronting delay costs," Resource and Energy Economics, Elsevier, vol. 22(1), pages 79-90, January.

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