Price Competition Under Cost Uncertainty: A Laboratory Analysis

13 Pages Posted: 5 Jun 2006

See all articles by Klaus Abbink

Klaus Abbink

University of Nottingham - School of Economics

Jordi Brandts

Instituto de Analisis Economico (CSIC) Barcelona

Multiple version iconThere are 2 versions of this paper

Date Written: July 2005

Abstract

We study the relation between the number of firms and price-cost margins under price competition with uncertainty about competitors` costs. We report an experiment in which two, three, and four identical firms repeatedly interact in this environment. In line with the theoretical prediction, market prices decrease with the number of firms, but on average stay above marginal costs. Pricing is more aggressive than in equilibrium. Absolute and relative surplus increases with the number of firms. Total surplus is close to the equilibrium level, because enhanced consumer surplus through lower prices is counteracted by occasional displacements of the most cost-efficient firm. (JEL C90, C72, D43, D83, L13)

Suggested Citation

Abbink, Klaus and Brandts, Jordi, Price Competition Under Cost Uncertainty: A Laboratory Analysis (July 2005). Economic Inquiry, Vol. 43, Issue 3, pp. 636-648, 2005, Available at SSRN: https://ssrn.com/abstract=906258

Klaus Abbink (Contact Author)

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

Instituto de Analisis Economico (CSIC) Barcelona ( email )

UAB Campus
E-08193 Bellaterra
Spain

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
25
Abstract Views
587
PlumX Metrics