Price Competition Under Cost Uncertainty: A Laboratory Analysis
We study the relation between the number of firms and price-cost margins under price competition with uncertainty about competitors' costs. We report an experiment in which two, three, and four identical firms repeatedly interact in this environment. In line with the theoretical prediction, market prices decrease with the number of firms, but on average stay above marginal costs. Pricing is more aggressive than in equilibrium. Absolute and relative surplus increases with the number of firms. Total surplus is close to the equilibrium level, because enhanced consumer surplus through lower prices is counteracted by occasional displacements of the most cost-efficient firm. (JEL C90, C72, D43, D83, L13) Copyright 2005, Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 43 (2005)
Issue (Month): 3 (July)
|Contact details of provider:|| Postal: |
Fax: 01865 267 985
Web page: http://ei.oupjournals.org/
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Plott, Charles R. & Smith, Vernon L., .
"An Experimental Examination of Two Exchange Institutions,"
83, California Institute of Technology, Division of the Humanities and Social Sciences.
- Plott, Charles R & Smith, Vernon L, 1978. "An Experimental Examination of Two Exchange Institutions," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 133-53, February.
- Offerman, Theo & Potters, Jan & Sonnemans, Joep, 2002.
"Imitation and Belief Learning in an Oligopoly Experiment,"
Review of Economic Studies,
Wiley Blackwell, vol. 69(4), pages 973-97, October.
- Theo Offerman & Jan Potters & Joep Sonnemans, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 973-997.
- Offerman, T.J.S. & Potters, J.J.M. & Sonnemans, J., 2002. "Imitation and belief learning in an oligopoly experiment," Other publications TiSEM a6a771c5-31ba-4193-8f76-a, Tilburg University, School of Economics and Management.
- repec:ner:tilbur:urn:nbn:nl:ui:12-91663 is not listed on IDEAS
- Dufwenberg, Martin & Gneezy, Uri & Goeree, Jacob K. & Nagel, Rosemarie, 2002.
"Price Floors and Competition,"
Research Papers in Economics
2002:13, Stockholm University, Department of Economics.
- Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999.
"Learning in Cournot Oligopoly--An Experiment,"
Royal Economic Society, vol. 109(454), pages C80-95, March.
- Wolfstetter, Elmar, 1996.
" Auctions: An Introduction,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 10(4), pages 367-420, December.
- Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
- Robert Moir, 1998. "A Monte Carlo Analysis of the Fisher Randomization Technique: Reviving Randomization for Experimental Economists," Experimental Economics, Springer, vol. 1(1), pages 87-100, June.
- Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
- Dufwenberg, M. & Gneezy, U., 1998.
"Price Competition and Market COncentration: An Experimental Study,"
1998-08, Uppsala - Working Paper Series.
- 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.
- Dufwenberg, Martin & Gneezy, Uri, 1998. "Price Competition and Market Concentration: An Experimental Study," Working Paper Series 1998:8, Uppsala University, Department of Economics.
- Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
- Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
- Selten, Reinhard & Apesteguia, Jose, 2005.
"Experimentally observed imitation and cooperation in price competition on the circle,"
Games and Economic Behavior,
Elsevier, vol. 51(1), pages 171-192, April.
- Reinhard Selten & Jose Apesteguia, 2002. "Experimentally Observed Imitation and Cooperation in Price Competition on the Circle," Bonn Econ Discussion Papers bgse19_2002, University of Bonn, Germany.
- Douglas D. Davis & Charles A. Holt, 1994. "Market Power and Mergers in Laboratory Markets with Posted Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 467-487, Autumn.
- 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.
- Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
- Morgan, John & Orzen, Henrik & Sefton, Martin, 2006. "An experimental study of price dispersion," Games and Economic Behavior, Elsevier, vol. 54(1), pages 134-158, January.
- Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
- Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March.
When requesting a correction, please mention this item's handle: RePEc:oup:ecinqu:v:43:y:2005:i:3:p:636-648. 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: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.