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Experimental Economics

, Volume 11, Issue 4, pp 390–401 | Cite as

Counterintuitive number effects in experimental oligopolies

  • Henrik OrzenEmail author
Article

Abstract

Recent theoretical research on oligopolistic competition suggests that under certain conditions prices increase with the number of competing firms. However, this counterintuitive result is based on comparative-static analyses which neglect the importance of dynamic strategies in naturally-occurring markets. When firms compete repeatedly, supra-competitive prices can become sustainable but this is arguably more difficult when more firms operate in the market. This paper reports the results of laboratory experiments investigating pricing behavior in a setting in which (static) theory predicts the counterintuitive number effect. Under a random matching protocol, which retains much of the one-shot nature of the model, the data corroborates the game-theoretic prediction. Under fixed matching duopolists post substantially higher prices, whereas prices in quadropolies remain very similar. As a result, the predicted effect is no longer observed, and towards the end the reverse effect is observed.

Keywords

Market concentration Experiments Tacit collusion 

JEL

C72 C92 D43 

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Copyright information

© Economic Science Association 2007

Authors and Affiliations

  1. 1.School of EconomicsUniversity of NottinghamNottinghamUK

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