An Experiment on Spatial Price Competition

Henrik Orzen and Martin Sefton

No 2006-14, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: We conduct an experiment on price competition in a segmented market. Each segment contains one seller and one consumer, and consumers incur transportation costs when they buy from a seller located in another segment. We observe persistent price dispersion in our experimental markets with the implication that consumers frequently switch suppliers. We find that larger markets are more competitive, and that competitive pressures in large markets preclude sellers from exploiting higher consumers’ willingness to pay. We compare laboratory outcomes against several theoretical benchmarks. We find that mixed strategy equilibrium predictions from the analysis of a static model perform better than alternative benchmarks in organizing the data.

Keywords: Spatial Price Competition; Price Dispersion; Experiments (search for similar items in EconPapers)
JEL-codes: C72 C92 (search for similar items in EconPapers)
Date: 2006-09
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Journal Article: An experiment on spatial price competition (2008)
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