Demand rationing in Bertrand-Edgeworth markets with fixed capacities: An experiment

Arbeitspapier

This study is the first to investigate the effect of demand rationing in experimental Bertrand-Edgeworth markets with fixed exogenous capacities. It is found that prices and profits are significantly higher under proportional than under efficient demand rationing. Moreover, the amount of capacity available to each firm is varied. In accordance with earlier studies, prices and profits are significantly higher when capacities are lower. Those effects accord qualitatively with the Nash equilibrium predictions of the corresponding stage games. However, the Nash equilibrium concept does poorly at quantitative predictions. Prices are significantly higher than the Nash prediction in all treatments, irrespective of whether the Nash equilibrium is in mixed or in pure strategies. Profits are higher than the Nash prediction with high capacities, but may converge to the equilibrium prediction in the long run with low capacities. The data of individual price choices feature dynamic patterns that can potentially be explained by both Edgeworth price cycles and imitation of the price set by the competitor.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper ; No. 2016-03

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Design of Experiments: General ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets
• Subject: Bertrand-Edgeworth ; demand rationing ; Edgeworth cycles ; oligopoly ; laboratory experiment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jacobs, Martin ; Requate, Till
• Event: Veröffentlichung
• (who): Kiel University, Department of Economics
• (where): Kiel
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/125820
• Last update: 10.03.2025, 11:41 AM CET