Excess capacity and pricing in Bertrand-Edgeworth markets: Experimental evidence

Arbeitspapier

We conduct experiments testing the relationship between excess capacity and pricing in repeated Bertrand-Edgeworth duopolies and triopolies. We systematically vary the experimental markets between low excess capacity (suggesting monopoly) and no capacity constraints (suggesting perfect competition). Controlling for the number of firms, higher production capacity leads to lower prices. However, the decline in prices as industry capacity rises is less pronounced than predicted by Nash equilibrium, and a model of myopic price adjustments has greater predictive power. With higher capacities, Edgeworth-cycle behavior becomes less pronounced, causing lower prices. Evidence for tacit collusion is limited and restricted to low-capacity duopolies.

Object Details

• ISBN: 978-3-86304-066-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DICE Discussion Paper ; No. 67

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Design of Experiments: General ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: tacit collusion ; excess capacity ; Edgeworth cycles

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fonseca, Miguel A. ; Normann, Hans-Theo
• Event: Veröffentlichung
• (who): Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)
• (where): Düsseldorf
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/64548
• Last update: 10.03.2025, 11:43 AM CET