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Market Power and Mergers in Laboratory Markets with Posted Prices

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Author Info
Douglas D. Davis
Charles A. Holt

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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.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 25 (1994)
Issue (Month): 3 (Autumn)
Pages: 467-487
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Handle: RePEc:rje:randje:v:25:y:1994:i:autumn:p:467-487

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  1. Douglas Davis & Bart Wilson, 2006. "Equilibrium Price Dispersion, Mergers and Synergies: An Experimental Investigation of Differentiated Product Competition," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 13(2), pages 169-194, July. [Downloadable!] (restricted)
  2. Klaus Abbink & Jordi Brandts, 2002. "24," UFAE and IAE Working Papers 523.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  3. Douglas D. Davis, 2006. "Pure Numbers Effects, Market Power, and Tacit Collusion in Posted Offer Markets," Working Papers 0603, VCU School of Business, Department of Economics, revised Jan 2009. [Downloadable!]
  4. Christian Vossler & Timothy Mount & Robert Thomas & Ray Zimmerman, 2009. "An experimental investigation of soft price caps in uniform price auction markets for wholesale electricity," Journal of Regulatory Economics, Springer, vol. 36(1), pages 44-59, August. [Downloadable!] (restricted)
  5. Klaus Abbink & Jordi Brandts, 2002. "Price competition under cost uncertainty: A laboratory analysis," UFAE and IAE Working Papers 550.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  6. Douglas Davis & Oleg Korenok & Robert Reilly, 2009. "Re-matching, information and sequencing effects in posted offer markets," Experimental Economics, Springer, vol. 12(1), pages 65-86, March. [Downloadable!] (restricted)
    Other versions:
  7. Rimvydas Baltaduonis, 2007. "An Experimental Study of Complex-Offer Auctions: Payment Cost Minimization vs. Offer Cost Minimization," Working papers 2007-13, University of Connecticut, Department of Economics. [Downloadable!]
  8. Puzzello, Daniela, 2006. "Tie-Breaking Rules and Divisibility in Experimental Duopoly Markets," MPRA Paper 6453, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  9. Bart Wilson, 1998. "What Collusion? Unilateral Market Power as a Catalyst for Countercyclical Markups," Experimental Economics, Springer, vol. 1(2), pages 133-145, September. [Downloadable!] (restricted)
  10. Douglas D. Davis & Bart J. Wilson, 2006. "Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation," Working Papers 0601, VCU School of Business, Department of Economics. [Downloadable!]
    Other versions:
  11. Jordi Brandts & Klaus Abbink, 2004. "24," Levine's Bibliography 122247000000000073, UCLA Department of Economics. [Downloadable!]
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