Inferring Buyer Strategies and their Impact on Monopolist Pricing

Jim Engle-Warnick () and Bradley Ruffle

No 2001-W28, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: We infer unobserved strategies from the observed actions of buyers in posted-offer market experiments to evaluate their effectiveness against a monopolist. While the strategies of one-quarter of the buyers in our experiments correspond to the game-theoretic prediction of passive price-taking, for three-quarters of the buyers we infer non-trival, repeated-game strategies. We find evidence that buyers use strategies that condition on time, price, and combinations of the two variables. The use of strategies and their complexity correlate negatively with market prices and monopolist profits. The unconditional and intense forgoing of profitable purchases early in the game is more effective against the monopolists that punishments that trigger when the market price exceeds a threshold. Since buyer profits are not significantly correlated with these strategy characteristics, and since the observed prices in these sessions are significantly below the monopoly price, the early withholding strategy appears to be an effective counteracting response to monpoly power.

Keywords: strategy inference; strategic buyer behavior; binary tree classification; experimental economics; posted-offer market (search for similar items in EconPapers)
JEL-codes: C63 C91 D42 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2001-12-03
New Economics Papers: this item is included in nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0128

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