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

Author

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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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    Cited by:

    1. Masiliūnas, Aidas & Nax, Heinrich H., 2020. "Framing and repeated competition," Games and Economic Behavior, Elsevier, vol. 124(C), pages 604-619.
    2. 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.
    3. Crosetto, P. & Gaudeul, A., 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Working Papers 2014-08, Grenoble Applied Economics Laboratory (GAEL).
    4. Potters, Jan & Suetens, Sigrid, 2020. "Optimization incentives in dilemma games with strategic complementarity," European Economic Review, Elsevier, vol. 127(C).
    5. Barthel, Anne-Christine & Hoffmann, Eric & Monaco, Andrew, 2019. "Coordination and learning in games with strategic substitutes and complements," Research in Economics, Elsevier, vol. 73(1), pages 53-65.
    6. 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.
    7. Douglas Davis, 2016. "Experimental Methods for the General Economist: Five Lessons from the Lab," Southern Economic Journal, John Wiley & Sons, vol. 82(4), pages 1046-1058, April.
    8. Lisa R. Anderson & Beth A. Freeborn & Jason P. Hulbert, 2015. "Determinants of Tacit Collusion in a Cournot Duopoly Experiment," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 633-652, January.
    9. Matt Van Essen & William B. Hankins, 2013. "Tacit Collusion in Price‐Setting Oligopoly: A Puzzle Redux," Southern Economic Journal, John Wiley & Sons, vol. 79(3), pages 703-726, January.
    10. Choudhury, Kangkan Dev & Aydinyan, Tigran, 2023. "Stochastic replicator dynamics: A theoretical analysis and an experimental assessment," Games and Economic Behavior, Elsevier, vol. 142(C), pages 851-865.
    11. Jan Potters & Sigrid Suetens, 2013. "Oligopoly Experiments In The Current Millennium," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 439-460, July.
    12. Olli Lappalainen, 2018. "Cooperation and Strategic Complementarity: An Experiment with Two Voluntary Contribution Mechanism Games with Interior Equilibria," Games, MDPI, vol. 9(3), pages 1-24, July.

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    Keywords

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    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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