Advance Production Duopolies and Posted Prices or Market-Clearing Prices

Source: RePEc

ABSTRACT The paper reports the results of 39 laboratory duopoly markets for which pricing institution and participant experience are treatments. Duopolies in which producers with complete information about market demand make advance-production output decisions and sell their output at a clearing price (Cournot markets) are contrasted with comparable duopolies who post prices for sale through an efficient rationing mechanism (Kreps-Scheinkman or KS markets). Inexperienced participants in KS markets have much more difficulty selecting capacities consistent with the theoretical predictions than do those in Cournot markets. With experience, the differences disappear. If trading sessions last sufficiently long, it is likely that differences will disappear with inexperienced participants.

  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: An experiment designed to assess the effects of advance-production decisions on posted-offer market performance is reported. Six of the twelve triopolies were conducted under standard posted-offer rules. In the remaining markets sellers made binding production commitments prior to posting prices, an alteration that shifts the unique stage-game Nash equilibrium from the competitive to the Cournot outcome. As predicted, advance-production decisions raised prices and lowered output. Nevertheless, stable Cournot outcomes were never observed.
    Journal of Economic Behavior & Organization 09/1999; 40(1-40):59-79. DOI:10.1016/S0167-2681(99)00042-6 · 1.01 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    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. Copyright Kluwer Academic Publishers 2003
    Experimental Economics 06/2003; 6(1):27-52. DOI:10.1023/A:1024248608752 · 1.36 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: In this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions. We analyze a duopoly model in which firms choose their capacities before engaging in Bertrand-like price competition. We demonstrate that the Cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the Cournot model would predict. In addition, our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium.
    The RAND Journal of Economics 02/1986; 17(3):404-415. DOI:10.2307/2555720 · 1.49 Impact Factor


Available from