Concentration and Competition: An Experiment

Henrik Orzen

No 2005-06, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: Recent theoretical research on oligopolistic competition suggests that prices may increase when more firms compete in a market. However, this finding is based on comparative-static analyses of static models, which overlook the possibility that sellers may be able to charge supra-competitive prices in a dynamic setting and that this is more likely to be sustained with fewer competitors. Previous laboratory evidence corroborating the comparative-static result was generated using a random matching protocol which retains much of the one-shot character of the theory. In a new experiment we reexamine the number effect in repeated markets and find that duopolists now post substantially higher prices, while average prices in quadropolies remain very similar. As a result, the predicted effect is not observed, and towards the end the reverse effect is observed.

Keywords: Market Concentration; Experiments; Tacit Collusion (search for similar items in EconPapers)
JEL-codes: C72 C92 D43 (search for similar items in EconPapers)
Date: 2005-04
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