Counterintuitive number effects in experimental oligopolies |
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Authors: | Henrik Orzen |
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Institution: | (1) School of Economics, University of Nottingham, University Park, Nottingham, NG7 2RD, UK |
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Abstract: | Recent theoretical research on oligopolistic competition suggests that under certain conditions prices increase with the number of competing firms. However, this counterintuitive result is based on comparative-static analyses which neglect
the importance of dynamic strategies in naturally-occurring markets. When firms compete repeatedly, supra-competitive prices
can become sustainable but this is arguably more difficult when more firms operate in the market. This paper reports the results
of laboratory experiments investigating pricing behavior in a setting in which (static) theory predicts the counterintuitive
number effect. Under a random matching protocol, which retains much of the one-shot nature of the model, the data corroborates
the game-theoretic prediction. Under fixed matching duopolists post substantially higher prices, whereas prices in quadropolies
remain very similar. As a result, the predicted effect is no longer observed, and towards the end the reverse effect is observed.
Electronic Supplementary Material The online version of this article () contains supplementary material, which is available to authorized users.
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Keywords: | Market concentration Experiments Tacit collusion |
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