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Advance Production, Inventories and Market Power: An Experimental Investigation

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  • Douglas D. Davis

    (Department of Economics, VCU School of Business)

Abstract

This paper reports an experiment conducted to assess the effects of alterations in production conditions and product durability on market power in Bertrand-Edgeworth duopolies. Experiment results indicate that advance production increases market power in the sense that mean transaction prices increase relative to static Nash equilibrium predictions for a baseline market. In a similar way, a simple inventory option reduces market power. We also find that both advance production and inventory carryover undermine a strong tendency toward tacit collusion observed in our baseline duopoly markets.

Suggested Citation

  • Douglas D. Davis, 2010. "Advance Production, Inventories and Market Power: An Experimental Investigation," Working Papers 1001, VCU School of Business, Department of Economics, revised Jan 2011.
    • Handle: RePEc:vcu:wpaper:1001
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    File URL: http://www.people.vcu.edu/~dddavis/papers/New%20Advance%20Production/AP_INV_DAVIS020311.pdf
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    File URL: http://www.people.vcu.edu/~dddavis/papers/New%20Advance%20Production/AP_INV_APPENDICES.pdf
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    File URL: http://www.people.vcu.edu/~dddavis/papers/New%20Advance%20Production/DAVIS_020311_INSTRUCTIONS.pdf
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    Cited by:

    1. Daniel Cracau & Benjamin Franz, 2012. "An experimental study of mixed strategy equilibria in simultaneous price-quantity games," FEMM Working Papers 120017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    2. Mongoljin Batsaikhan & Norovsambuu Tumennasan, 2018. "Output Decisions and Price Matching: Theory and Experiment," Management Science, INFORMS, vol. 64(8), pages 3609-3624, August.
    3. Daniel Cracau & Abdolkarim Sadrieh, 2014. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels," FEMM Working Papers 140003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    4. Daniel Cracau & Benjamin Franz, 2014. "An experimental test of the mixed strategy equilibrium in price-quantity oligopolies," Economics Bulletin, AccessEcon, vol. 34(3), pages 1369-1380.
    5. Tasnádi, Attila, 2020. "Production in advance versus production to order: Equilibrium and social surplus," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 11-18.

    More about this item

    Keywords

    Experiments; Bertrand-Edgeworth Competition; Advance Production; Inventory Carryover;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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