Price Increasing Competition? Experimental Evidence

Cary Deck () and Jingping Gu
Additional contact information
Jingping Gu: Department of Economics, University of Arkansas

Working Papers from Chapman University, Economic Science Institute

Abstract: Economic intuition suggests that increased competition generates lower prices. However, recent theoretical work shows that a monopolist may charge a lower price than a firm facing a competitor selling a differentiated product. The direction of the price change when competition is introduced is dependent upon the joint distribution of buyer values for the two products. We explore this relationship using controlled laboratory experiments. Our results indicate that the distribution of buyer values does affect prices in a manner consistent with the theoretical predictions, although price increasing competition is rare due in part to overly intense competition regardless of the distribution of buyer values. We also explore pricing dynamics and find that sellers are more sensitive to their rivals when buyer values are positively correlated.

Keywords: product differentiation; pricing; market structure; market experiments (search for similar items in EconPapers)
JEL-codes: C9 D4 L1 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010
New Economics Papers: this item is included in nep-com and nep-exp
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http://www.chapman.edu/ESI/wp/PriceIncreasingCompetition-Deck.pdf (application/pdf)

Related works:
Journal Article: Price increasing competition? Experimental evidence (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:10-19

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