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Contestability in Real-Time Experimental Flow Markets

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  • Edward L. Millner
  • Michael D. Pratt
  • Robert J. Reilly

Abstract

This article reports the results from laboratory markets using a new trading institution in which sellers post offers to sell flows of output in real time. We use the new institution to examine the outcomes in natural monopoly experimental markets. No. stable price outcomes were observed in markets contestable by two firms, a finding that is consistent with the contestable markets hypothesis, but in conflict with assertions commonly made by those advancing the theory's role in policy formation. The average efficiency of markets contestable by two firms, while greater than that of monopoly markets protected from entry, was significantly less than that associated with the sustainable equilibrium.

Suggested Citation

  • Edward L. Millner & Michael D. Pratt & Robert J. Reilly, 1990. "Contestability in Real-Time Experimental Flow Markets," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 584-599, Winter.
    • Handle: RePEc:rje:randje:v:21:y:1990:i:winter:p:584-599
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    Cited by:

    1. Douglas D. Davis & Oleg Korenok, 2009. "Posted Offer Markets In Near‐Continuous Time: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 449-466, July.
    2. Dasgupta Utteeyo, 2011. "Are Entry Threats Always Credible?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-41, December.
    3. Buchheit, Steve & Feltovich, Nick, 2010. "Experimental evidence of a sunk–cost paradox: a study of pricing behavior in Bertrand–Edgeworth duopoly," SIRE Discussion Papers 2010-124, Scottish Institute for Research in Economics (SIRE).
    4. Elberfeld, Walter & Wolfstetter, Elmar, 1999. "A dynamic model of Bertrand competition with entry," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 513-525, May.
    5. Zizzo, Daniel John, 2013. "Claims and confounds in economic experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 186-195.

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