Contestability in Real-Time Experimental Flow Markets

Edward L. Millner, Michael D. Pratt and Robert Reilly

RAND Journal of Economics, 1990, vol. 21, issue 4, 584-599

Abstract: This article reports the results from laboratory markets using a new trading institution in which sellers post offers to sell flows of output in real time. We use the new institution to examine the outcomes in natural monopoly experimental markets. No. stable price outcomes were observed in markets contestable by two firms, a finding that is consistent with the contestable markets hypothesis, but in conflict with assertions commonly made by those advancing the theory's role in policy formation. The average efficiency of markets contestable by two firms, while greater than that of monopoly markets protected from entry, was significantly less than that associated with the sustainable equilibrium.

Date: 1990
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