Industrial organization in the laboratory
Theories of industrial organization (IO) are tested in the laboratory more and more often. The example we consider throughout the paper is oligopoly theory, specifically, the Cournot and the Stackelberg model of duopolistic quantity competition with homogeneous products. These models have often been subjected to tests: participants were told that they represented firms and received profits according to their chosen quantities. However, testing a theory in the laboratory requires that the experimental design falls into the domain of the theory. The domain of mainstream IO is market behaviour of large (i.e., multi-agent) firms. The basic hypothesis is that these firms maximize profits. This hypothesis cannot be tested in experiments where single agents are told that they represent firms. For a test, it would be necessary to assume that multi-agent groups and single agents show the same behaviour. This assumption is inconsistent with all current theories of individual behaviour and has, moreover, been falsified in many experiments. It follows that many alleged experimental tests of IO models are irrelevant to mainstream IO. This raises the question of whether relevant laboratory tests are possible at all. The answer is positive if one considers theories of the firm that relate organizational behaviour to the internal structure of the firm, like Alchian and Demsetz’s (1972) contractual view of the firm.
|Date of creation:||2012|
|Date of revision:|
|Publication status:||Forthcoming in|
|Contact details of provider:|| Postal: |
Web page: http://www.uni-marburg.de/fb02/
More information through EDIRC
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.:
- 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.
- Philippe Raab & Burkhard C. Schipper, 2004. "Cournot Competition between Teams: An Experimental Study," Bonn Econ Discussion Papers bgse13_2004, University of Bonn, Germany.
- Burkhard C. Schipper & Philippe Raab, 2006. "Cournot Competition between Teams: An Experimental Study," Working Papers 626, University of California, Davis, Department of Economics.
- Hildenbrand, Andreas, 2010. "Cournot or Stackelberg competition? A survey on experimental evidence," MPRA Paper 24468, University Library of Munich, Germany.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
- Normann, Hans-Theo & Ruffle, Bradley, 2011. "Introduction to the special issue on experiments in industrial organization," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 1-3, January.
- Novshek, William., 1984.
"On the Existence of Cournot Equilibrium,"
517, California Institute of Technology, Division of the Humanities and Social Sciences.
When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201205. 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: (Bernd Hayo)
If references are entirely missing, you can add them using this form.