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COLLUSION AND FIGHTS IN AN EXPERIMENT WITH PRICE‐SETTING FIRMS AND ADVANCE PRODUCTION *
Author(s) -
BRANDTS JORDI,
GUILLEN PABLO
Publication year - 2007
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2007.00319.x
Subject(s) - duopoly , collusion , monopolistic competition , microeconomics , production (economics) , economics , economic surplus , industrial organization , monopoly , cournot competition , market economy , welfare
We present results from 50‐round duopoly and triopoly experiments. Firms decide repeatedly both on price and quantity of a perishable good. Each firm has capacity to serve the whole market. The stage game does not have an equilibrium in pure strategies. Most markets evolve either to monopolies as a consequence of bankruptcies or to collusion at the monopolistic price. Evolution is faster in markets with two than in those with three firms. Therefore, over time average price is lower with three than with two. Consumer surplus is higher with three firms, but efficiency is lower in markets with three firms.