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Concentration and Competition: An Experiment

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  • Henrik Orzen

    () (University of Nottingham)

Abstract

Recent theoretical research on oligopolistic competition suggests that prices may increase when more firms compete in a market. However, this finding is based on comparative-static analyses of static models, which overlook the possibility that sellers may be able to charge supra-competitive prices in a dynamic setting and that this is more likely to be sustained with fewer competitors. Previous laboratory evidence corroborating the comparative-static result was generated using a random matching protocol which retains much of the one-shot character of the theory. In a new experiment we reexamine the number effect in repeated markets and find that duopolists now post substantially higher prices, while average prices in quadropolies remain very similar. As a result, the predicted effect is not observed, and towards the end the reverse effect is observed.

Suggested Citation

  • Henrik Orzen, 2005. "Concentration and Competition: An Experiment," Discussion Papers 2005-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  • Handle: RePEc:not:notcdx:2005-06
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    Keywords

    Market Concentration; Experiments; Tacit Collusion;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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