Price competition and market concentration: an experimental study
The classical price competition model (named after Bertrand), prescribes that in equilibrium prices are equal to marginal costs. Moreover, prices do not depend on the number of competitors. Since this outcome is not in line with real-life observations, it is known as the ‘Bertrand Paradox.’ In exper...
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| Veröffentlicht in: | International journal of industrial organization 2000, Vol.18 (1), p.7-22 |
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| creator | Dufwenberg, Martin Gneezy, Uri |
| description | The classical price competition model (named after Bertrand), prescribes that in equilibrium prices are equal to marginal costs. Moreover, prices do not depend on the number of competitors. Since this outcome is not in line with real-life observations, it is known as the ‘Bertrand Paradox.’ In experimental price competition markets we find that prices do depend on the number of competitors: the Bertrand solution does not predict well when the number of competitors is two, but (after some opportunities for learning) predicts well when the number of competitors is three or four. A bounded rationality explanation of this is suggested. |
| doi_str_mv | 10.1016/S0167-7187(99)00031-4 |
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| ispartof | International journal of industrial organization, 2000, Vol.18 (1), p.7-22 |
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| language | eng |
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| source | RePEc; Elsevier ScienceDirect Journals; Periodicals Index Online |
| subjects | Bertrand model Bounded rationality Competition Costs Economic concentration Experiment Experimental economics Industrial economics Learning Market concentration Noise-bidding Price competition Price models Prices Rationality Studies |
| title | Price competition and market concentration: an experimental study |
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