Oligopoly Limit-Pricing in the Lab

TILEC Discussion Paper 2006-013

41 Pages Posted: 12 Jul 2006

See all articles by Wieland Müller

Wieland Müller

University of Vienna, Department of Economics & VCEE; Tilburg University, Department of Economics & CentER

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Yaron Yehezkel

Coller School of Management , Tel-Aviv University

Date Written: June 2006

Abstract

We examine the behavior of senders and receivers in the context of oligopoly limit pricing experiments in which high prices chosen by two privately informed incumbents may signal to a potential entrant that the industry-wide costs are high and that entry is unprofitable. The results provide strong support for the theoretical prediction that the incumbents can credibly deter unprofitable entry without having to distort their prices away from their full information levels. Yet, in a large number of cases, asymmetric information induces incumbents to raise prices when costs are low. The results also show that the entrants' behavior is by and large bi-polar: entrants tend to enter when the incumbents' prices are low but tend to stay out when the incumbents' prices are high.

Keywords: oligopoly limit pricing, multi-sender signalling, full information equilibrium

JEL Classification: C72, C91

Suggested Citation

Müller, Wieland and Spiegel, Yossi and Yehezkel, Yaron, Oligopoly Limit-Pricing in the Lab (June 2006). TILEC Discussion Paper 2006-013. Available at SSRN: https://ssrn.com/abstract=913686 or http://dx.doi.org/10.2139/ssrn.913686

Wieland Müller (Contact Author)

University of Vienna, Department of Economics & VCEE ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

HOME PAGE: http://https://homepage.univie.ac.at/wieland.mueller/

Tilburg University, Department of Economics & CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/w.mueller-3.htm

Yossi Spiegel

Tel Aviv University, Coller School of Management ( email )

Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-9063 (Phone)
972-3-640-7739 (Fax)

HOME PAGE: http://www.tau.ac.il/~spiegel

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Yaron Yehezkel

Coller School of Management , Tel-Aviv University ( email )

Ramat Aviv
Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~yehezkel/

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