Price Competition Under Cost Uncertainty: A Laboratory Analysis

Klaus Abbink and Jordi Brandts

Economic Inquiry, 2005, vol. 43, issue 3, 636-648

Abstract: We study the relation between the number of firms and price-cost margins under price competition with uncertainty about competitors' costs. We report an experiment in which two, three, and four identical firms repeatedly interact in this environment. In line with the theoretical prediction, market prices decrease with the number of firms, but on average stay above marginal costs. Pricing is more aggressive than in equilibrium. Absolute and relative surplus increases with the number of firms. Total surplus is close to the equilibrium level, because enhanced consumer surplus through lower prices is counteracted by occasional displacements of the most cost-efficient firm. (JEL C90, C72, D43, D83, L13) Copyright 2005, Oxford University Press.

JEL-codes: C72 C90 D43 D83 L13 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (21)

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Working Paper: Price competition under cost uncertainty: A laboratory analysis (2015)
Working Paper: Price competition under cost uncertainty: A laboratory analysis (2002)
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