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An Experiment on Spatial Price Competition

  • Henrik Orzen

    (School of Economics, University of Nottingham)

  • Martin Sefton


    (School of Economics, University of Nottingham)

We conduct an experiment on price competition in a segmented market. Each segment contains one seller and one consumer, and consumers incur transportation costs when they buy from a seller located in another segment. We observe persistent price dispersion in our experimental markets with the implication that consumers frequently switch suppliers. We find that larger markets are more competitive, and that competitive pressures in large markets preclude sellers from exploiting higher consumers’ willingness to pay. We compare laboratory outcomes against several theoretical benchmarks. We find that mixed strategy equilibrium predictions from the analysis of a static model perform better than alternative benchmarks in organizing the data.

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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2006-14.

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Date of creation: Sep 2006
Date of revision:
Handle: RePEc:not:notcdx:2006-14
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School of Economics University of Nottingham University Park Nottingham NG7 2RD

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