BILATERAL OLIGOPOLY IN POLLUTION PERMIT MARKETS: EXPERIMENTAL EVIDENCE

Kurt Schnier (), Martin Doyle, James R. Rigby and Andrew Yates

Economic Inquiry, 2014, vol. 52, issue 3, 1060-1079

Abstract: type="main" xml:id="ecin12087-abs-0001"> We experimentally investigate behavior in a bilateral oligopoly using a supply function equilibria model discussed by Klemperer and Meyer (1989), Hendricks and McAfee (2010), and Malueg and Yates (2009). We focus on the role that market size and the degree of firm heterogeneity have on the market equilibrium. Our results indicate that subjects within the experiment recognize the strategic incentives in a bilateral oligopoly, but they do not exploit these incentives to the exact magnitude predicted by theory. We find weaker support for predicted market outcomes, as market efficiency does not depend on market size, and in some cases buyers or sellers are more successful at extracting the rents from the market. ( JEL L13 , Q5 , C9 )

Date: 2014
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