Market Power and Mergers in Laboratory Markets with Posted Prices

Douglas Davis and Charles Holt

RAND Journal of Economics, 1994, vol. 25, issue 3, 467-487

Abstract: In this article, we use laboratory methods to evaluate determinants of supracompetitive pricing. The experiment involves three treatments, each with the same market supply, demand, and competitive price. In the baseline treatment, capacity is divided among five sellers so that the competitive price is a Nash equilibrium. Market power is created in a second treatment by reallocating capacity among the sellers. This market power raises observed prices in all sessions. In a third treatment, the three smallest sellers are merged in a way that holds market power constant. The consolidation has little residual effect on prices.

Date: 1994
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