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Behavioral Convergence Properties of Cournot and Bertrand Markets: An Experimental Analysis

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  • Douglas D. Davis

    () (Department of Economics, VCU School of Business)

Abstract

This paper reports an experiment that examines the relative convergence properties of differentiated-product Cournot and Bertrand oligopolies. Overall, Bertrand markets tend to converge to Nash equilibrium predictions more quickly and more completely than Cournot markets. Further, when products are close substitutes Bertrand markets respond more quickly to an announced nominal shock. As products become weaker substitutes, however, an increased tendency for tacit collusion degrades convergence in Bertrand markets. This effect is particularly pronounced following a nominal shock. Our results suggest that in an oligopoly context variations in decision error costs dominate a 'Strategic Substitutes Effect' isolated in previous experimental research.

Suggested Citation

  • Douglas D. Davis, 2008. "Behavioral Convergence Properties of Cournot and Bertrand Markets: An Experimental Analysis," Working Papers 0808, VCU School of Business, Department of Economics, revised Jan 2011.
  • Handle: RePEc:vcu:wpaper:0808
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lisa Anderson & Beth Freeborn & Jason Hulbert, 2012. "Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(1), pages 37-50, February.
    2. Paolo Crosetto & Alexia Gaudeul, 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Jena Economic Research Papers 2014-026, Friedrich-Schiller-University Jena.
    3. Messinger, Paul R., 2016. "The role of fairness in competitive supply chain relationships: An experimental studyAuthor-Name: Choi, Sungchul," European Journal of Operational Research, Elsevier, vol. 251(3), pages 798-813.

    More about this item

    Keywords

    Experiments; Strategic Substitutes and Strategic Complements; Bertrand and Cournot Markets;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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