Hostname: page-component-7b9c58cd5d-wdhn8 Total loading time: 0 Render date: 2025-03-16T12:17:45.711Z Has data issue: false hasContentIssue false

Capacity Choices and Price Competition in Experimental Markets

Published online by Cambridge University Press:  14 March 2025

Vital Anderhub*
Affiliation:
Department of Economics, Humboldt-Universität zu Berlin, Spandauer Str. 1, D-10178 Berlin, Germany
Werner Güth*
Affiliation:
Max-Planck Institute for Research into Economic Systems, Kahlaische Street 10, D-07745 Jena, Germany
Ulrich Kamecke*
Affiliation:
Department of Economics, Humboldt-Universität zu Berlin, Spandauer Str 1, D-10178 Berlin, Germany
Hans-Theo Normann*
Affiliation:
Department of Economics, Royal Holloway, University of London, Egham, Surrey TW20 0EX, UK

Abstract

We report on experimental duopoly markets with heterogeneous goods. In these markets, sellers first choose capacities and then prices. While capacities remain fixed for either five or ten periods, prices have to be chosen in every period. The experiments starts with two sets of exogenously predetermined capacities. Independently of the distribution of capacities is, a unique pure-strategy in prices is subgame perfect. In equilibrium, capacities should correspond to the Cournot prediction. Given capacities, price-setting behavior is in general consistent with the theory. Average capacities converge above the Cournot level. Capacities converge at the industry level but are somewhat dispersed. Sellers rarely manage to cooperate.

Type
Research Article
Copyright
Copyright © 2003 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Boccard, N. and Wauthy, X. (2000). “Bertrand Competition and Cournot Outcomes: Further Results.” Economics Letters. 68, 279285.CrossRefGoogle Scholar
Brown-Kruse, J., Rassenti, S., Reynolds, S., and Smith, V.L. (1994). “Bertrand-Edgeworth Competition in Experimental Markets.” Econometrica. 62(2), 343372.CrossRefGoogle Scholar
Cournot, A. (1838). Recherches sur les principles mathématiques de la théorie des richess. Paris: Hachette.Google Scholar
Davidson, C. and Deneckere, R. (1996). “Long-Run in Capacity, Short-Run Competition in Price, and the Cournot Model.” RAND Journal of Economics. 17(3), 404415.CrossRefGoogle Scholar
Davis, D.D. (1999). “Advance Production and Cournot Outcomes: An Experimental Investigation.” Journal of Economic Behavior and Organization. 40, 5979.CrossRefGoogle Scholar
Dufwenberg, M. and Gneezy, U. (2000). “Price Competition and Market Concentration: An Experimental Study.” International Journal of Industrial Organization. 18, 722.CrossRefGoogle Scholar
Fischbacher, U. (1999). “Z-Tree: Zurich Toolbox for Readymade Economic Experiments.” Working Paper No. 21, Institute for Empirical Research in Economics, University of Zurich.Google Scholar
Güth, W. (1995). “A Simple Justification of Quantity Competition and the Cournot-Oligopoly Solution.” ifo-Studien. 41(2), 245257.Google Scholar
Güth, S. and Güth, W. (2001). “Preemtptionin Capacity and Price Determination—A Study of Endogenous Timing of Decisions for Homogenous Goods.” Metroeconomica. 52(3), 329355.CrossRefGoogle Scholar
Huck, S., Normann, H.-T., and Oechssler, J. (1999). “Learning in Cournot Oligopoly—An Experiment.” Economic Journal. 109, C80C95.CrossRefGoogle Scholar
Huck, S., Normann, H.-T., and Oechssler, J. (2000). “Does Information About Competitors’ Actions Increase or Decrease Competition in Experimental Oligopoly Markets?International Journal of Industrial Organization. 18, 3958.CrossRefGoogle Scholar
Huck, S., Normann, H.-T., and Oechssler, J. (2001). “Two are Few and Four are Many: Number Effects in Experimental Oligopolies.” Mimeo: Humboldt-Universitat zu Berlin. Forthcoming in: Journal of Economic Behavior and Organization.Google Scholar
Keser, C. (2000). “Cooperation in Symmetric Duopolies with Demand Inertia.” International Journal of Industrial Organization. 18, 2338.CrossRefGoogle Scholar
Kreps, D. and Scheinkman, J. (1983). “Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes.” Bell Journal of Economics. 14, 326337.CrossRefGoogle Scholar
Maggi, G. (1996). “Strategic Trade Policies with Endogenous Mode of Competition.” American Economic Review. 86, 237258.Google Scholar
Martin, S. (1999). “Kreps and Scheinkman with Product Differentiation: An Expository Note.” Mimeo: University of Amsterdam.Google Scholar
Martin, S. (2000). “Two-Stage Capacity Constrained Competition.” Mimeo: University of Amsterdam.Google Scholar
Martin, S., Normann, H.T., and Snyder, C.M. (2001). “Vertical Foreclosure in Experimental Markets.” RAND Journal of Economics. 32, 466496.CrossRefGoogle Scholar
Muren, A. (2000). “Quantity Precommitment in an Experimental Oligopoly.” Journal of Economic Behavior and Organization. 41, 147157.CrossRefGoogle Scholar
Phlips, L. (1995). Competition Policy—A Game Theoretic Analysis. Cambridge: Cambridge University Press.Google Scholar
Rees, R. (1993). “Collusion in the Great Salt Duopoly.” Economic Journal. 103, 833848.CrossRefGoogle Scholar
Rosenbaum, D.I. (1989). “An Empirical Test of the Effect of Excess Capacity in Price Setting, Capacity-Constraint Supergames.” International Journal of Industrial Organization. 7, 231241.CrossRefGoogle Scholar
Selten, R. (1994). “Multistage Game Models and Delay Supergames.” In Fraengsmeyer, T. (ed.), Les Prix Nobel 1994. Stockholm: Almquist & Wiksell, pp. 320348.Google Scholar
Selten, R., Mitzkewitz, M., and Uhlich, G.R. (1997). “Duopoly Strategies Programmed by Experienced Players.” Econometrica. 65, 517556.CrossRefGoogle Scholar
Selten, R. and Stoecker, R. (1986). “End Behavior in Finite Prisoner's Dilemma Supergames.” Journal of Economic Behavior and Organization. 7, 4770.CrossRefGoogle Scholar
STATA Corp. (1999): Reference Manual, Release 6, STATA Press Texas.Google Scholar
Yin, X. and Ng, Y.-K. (1997). “Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes: A Case with Product Differentiation.” Australian Economic Review. 36, 1422.Google Scholar