Information Frictions and Market Power: A Laboratory Study

Xavier Vives, Anna Bayona and Jordi Brandts

No 11378, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In a laboratory experiment with supply function competition and private information about correlated costs we study whether cost interdependence leads to greater market power in relation to when costs are uncorrelated in the ways predicted by Bayesian supply function equilibrium. We find that with uncorrelated costs observed behavior is close to the theoretical benchmark. However, with interdependent costs and precise private signals, market power does not raise above the case of uncorrelated costs contrary to the theoretical prediction. This is consistent with subjects not being able to make inferences from the market price when costs are interdependent. We find that this effect is less severe when private signals are noisier.

Keywords: Supply function competition; Private information; Wholesale electricity market (search for similar items in EconPapers)
JEL-codes: C92 D43 L13 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Information frictions and market power: A laboratory study (2020)
Working Paper: Information Frictions and Market Power: A Laboratory Study (2016)
Working Paper: Information Frictions and Market Power: A Laboratory Study (2016)
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