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Capacity Choices and Price Competition in Experimental Markets

Published online by Cambridge University Press:  14 March 2025

Vital Anderhub ,
Werner Güth ,
Ulrich Kamecke  and
Hans-Theo Normann
Vital Anderhub*
Affiliation:
Department of Economics, Humboldt-Universität zu Berlin, Spandauer Str. 1, D-10178 Berlin, Germany
Werner Güth*
Affiliation:
Max-Planck Institute for Research into Economic Systems, Kahlaische Street 10, D-07745 Jena, Germany
Ulrich Kamecke*
Affiliation:
Department of Economics, Humboldt-Universität zu Berlin, Spandauer Str 1, D-10178 Berlin, Germany
Hans-Theo Normann*
Affiliation:
Department of Economics, Royal Holloway, University of London, Egham, Surrey TW20 0EX, UK
*
email: anderhub@wiwi.hu-berlin.de
email: gueth@mpiew-jena.mpg.de
email: Kamecke@wiwi.hu-berlin.de
email: hans.normann@rhul.ac.uk
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Abstract

We report on experimental duopoly markets with heterogeneous goods. In these markets, sellers first choose capacities and then prices. While capacities remain fixed for either five or ten periods, prices have to be chosen in every period. The experiments starts with two sets of exogenously predetermined capacities. Independently of the distribution of capacities is, a unique pure-strategy in prices is subgame perfect. In equilibrium, capacities should correspond to the Cournot prediction. Given capacities, price-setting behavior is in general consistent with the theory. Average capacities converge above the Cournot level. Capacities converge at the industry level but are somewhat dispersed. Sellers rarely manage to cooperate.

Keywords

Bertrand-EdgeworthCournotexperiments

JEL classification

C92: Laboratory, Group Behavior L13: Oligopoly and Other Imperfect Markets
Type
Research Article
Information
Experimental Economics , Volume 6 , Issue 1 , June 2003 , pp. 27 - 52
Copyright
Copyright © 2003 Economic Science Association

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