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UFAE and IAE Working Paper No. 523.02

27 Pages Posted: 5 Mar 2003

See all articles by Klaus Abbink

Klaus Abbink

University of Nottingham - School of Economics

Jordi Brandts

Instituto de Analisis Economico (CSIC) Barcelona

Date Written: July 2002

Abstract

We study the relation between the number of firms and market power in experimental oligopolies. Price competition under decreasing returns involves a wide interval of pure strategy equilibrium prices. We present results of an experiment in which two, three and four identical firms repeatedly interact in this environment. Less collusion with more firms leads to lower average prices. With more than two firms, the predominant market price is 24. A simple imitation model captures this phenomenon. For the long run, the model predicts that prices converge to the Walrasian outcome, but for the intermediate term the modal price is 24.

Keywords: Laboratory experiments, industrial organisation, oligopoly, price competition, co-ordination games, learning

JEL Classification: C90, C72, D43, D83, L13

Suggested Citation

Abbink, Klaus and Brandts, Jordi, 24 (July 2002). UFAE and IAE Working Paper No. 523.02, Available at SSRN: https://ssrn.com/abstract=367500 or http://dx.doi.org/10.2139/ssrn.367500

Klaus Abbink

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
44-115-95-14768 (Phone)
44-115-95-14159 (Fax)

Jordi Brandts (Contact Author)

Instituto de Analisis Economico (CSIC) Barcelona ( email )

UAB Campus
E-08193 Bellaterra
Spain

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