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Repeated Price Competition Between Individuals and Between Teams

Author

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  • Gary Bornstein

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  • David V. Budescu
  • Tamar Kugler
  • Reinhard Selten

Abstract

We conducted an experimental study of price competition in a duopolistic market. The market was operationalized as a repeated game between two “teams” with one, two, or three players in each team. Each player simultaneously demanded a price, and the team whose total asking price was smaller won the competition and was paid its asked price. The losing team was paid nothing. In case of a tie, the teams split the asking price. For teams with multiple players we manipulated the way in which the team’s profit was divided between the team members. In one treatment each team member was paid his or her asking price if the team won, and half that if the game was tied, while in the other treatment the team’s profit for winning or tying the game was divided equally among its members. We found that asking (and winning) prices were significantly higher in competition between individuals than in competition between two- or three-person teams. There were no general effects of team size, but prices were sustained at a higher level when each team member was paid his or her own asked price than when the team’s profits were divided equally.

Suggested Citation

  • Gary Bornstein & David V. Budescu & Tamar Kugler & Reinhard Selten, 2002. "Repeated Price Competition Between Individuals and Between Teams," Discussion Paper Series dp303, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  • Handle: RePEc:huj:dispap:dp303
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    References listed on IDEAS

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    1. repec:gam:jgames:v:9:y:2018:i:3:p:41-:d:154562 is not listed on IDEAS
    2. Han, Johann & Kairies-Schwarz, Nadja & Vomhof, Markus, 2016. "Quality competition and hospital mergers: An experiment," Ruhr Economic Papers 609, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Uri Gneezy, 2005. "Step-Level Reasoning and Bidding in Auctions," Management Science, INFORMS, vol. 51(11), pages 1633-1642, November.
    4. Müller, Wieland & Tan, Fangfang, 2013. "Who acts more like a game theorist? Group and individual play in a sequential market game and the effect of the time horizon," Games and Economic Behavior, Elsevier, vol. 82(C), pages 658-674.
    5. Martin Kolmar & Andreas Wagener, 2013. "Inefficiency As A Strategic Device In Group Contests Against Dominant Opponents," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2083-2095, October.
    6. repec:eee:jeborg:v:144:y:2017:i:c:p:121-132 is not listed on IDEAS
    7. Ronald Bosman & Heike Hennig-Schmidt & Frans Winden, 2006. "Exploring group decision making in a power-to-take experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(1), pages 35-51, April.
    8. Raab, Philippe & Schipper, Burkhard C., 2009. "Cournot competition between teams: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 691-702, November.
    9. Lisa Bruttel & Simeon Schudy, 2012. "Competition Within Firms," Journal of Competition Law and Economics, Oxford University Press, vol. 8(1), pages 167-185.
    10. Takehiro Ito & Kazuhito Ogawa & Akihiro Suzuki & Hiromasa Takahashi & Toru Takemoto, 2016. "Contagion of Self-Interested Behavior: Evidence from Group Dictator Game Experiments," German Economic Review, Verein für Socialpolitik, vol. 17(4), pages 425-437, November.
    11. Hildenbrand, Andreas, 2013. "Is a firm a firm? A Stackelberg experiment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-26.
    12. Cason, Timothy N. & Mui, Vai-Lam, 2015. "Individual versus Group Play in the Repeated Coordinated Resistance Game," Journal of Experimental Political Science, Cambridge University Press, vol. 2(01), pages 94-106, March.
    13. Max Albert & Andreas Hildenbrand, 2016. "Industrial Organization and Experimental Economics: How to Learn from Laboratory Experiments," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 135-156, August.
    14. Kurschilgen, Michael & Morell, Alexander & Weisel, Ori, 2017. "Internal conflict, market uniformity, and transparency in price competition between teams," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168057, Verein für Socialpolitik / German Economic Association.
    15. Michael Kurschilgen & Alexander Morell & Ori Weisel, 2016. "Internal conflict, market uniformity, and transparency in price competition between teams," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_18, Max Planck Institute for Research on Collective Goods.
    16. Rudy Santore & Youping Li & Stephen Cotten, 2015. "Colluding with a conscience," Journal of Economics, Springer, vol. 114(3), pages 255-269, April.

    More about this item

    Keywords

    Bertrand model; Price competition; Tacit collusion; Experiments; Group behavior;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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