Dissertation abstract: Essays on pricing in experimental duopoly markets |
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Authors: | Shakun Datta |
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Institution: | (1) Department of Economics, Krannert School of Management, Purdue University, West Lafayette, IN 47907-2056, USA;(2) Present address: Department of Economics, Robins School of Business, University of Richmond, Richmond, VA 23173, USA |
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Abstract: | This dissertation comprises three independent essays that analyze pricing behavior in experimental duopoly markets.
The first essay examines whether the content of buyer information and the timing of its dissemination affects seller market
power. We construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post
prices. The experiment varies the information on price or product characteristics that buyers learn under different timing
assumptions (pre- and post-search), generating four information treatments. Theory predicts that price information lowers
the equilibrium price, but information about product characteristics increases the equilibrium price. That is, contrary to
simple intuition, presence of informed buyers may impart a negative externality on other uninformed buyers. The data support
the model's negative externality result when sellers face a large number of robot buyers that are programmed to search optimally.
Observed prices conform to the model's comparative statics and are broadly consistent with predicted levels. With human buyers,
however, excessive search instigates increased price competition and sellers post prices that are significantly lower than
predicted.
The second essay uses experimental methods to demonstrate the anti-competitive potential of price-matching guarantees in both
symmetric and asymmetric cost duopolies. When costs are symmetric, price-matching guarantees increase the posted prices to
the collusive level. With asymmetric costs, guaranteed prices remain high relative to prices without the use of guarantees,
but the overall ability of guarantees to act as a collusion facilitating device depends on the relative cost difference. Fewer
guarantees, combined with lower average prices, suggest that cost asymmetries may discourage collusion.
The third essay investigates the effect of firm size asymmetry on the emergence of price leadership in a homogeneous good
duopoly. With discounting, the unique subgame-perfect equilibrium predicts that the large firm will emerge as the endogenous
price leader. Independent of the level of size asymmetry, the laboratory data indicates that price leadership by the large
firm is one of the most frequently observed timings of price announcement. In most cases, however, it comes second to simultaneous
price-setting. This tendency to wait for the other firm to announce its price is especially strong when the level of size
asymmetry between firms is low. We attribute the lower than expected frequency of price leadership to coordination failure,
which is further compounded by elements of inequity aversion.
JEL Classification C91, D43, D83, L11
Dissertation Committee:
Timothy Cason (Chair), Department of Economics, Purdue University
Dan Kovenock, Department of Economics, Purdue University
Stephen Martin, Department of Economics, Purdue University
Marco Casari, Department of Economics, Purdue University |
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Keywords: | Experiment Posted offer Market power Product information Buyer Search Price-matching guarantees Collusion Cost asymmetry Capacity constraints Endogenous timing |
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