Monday, November 22, 2010
Posted by D. Daniel Sokol
Cary Deck (Department of Economics, University of Arkansas) and Jingping Gu (Department of Economics, University of Arkansas) provide interesting findings on Price Increasing Competition? Experimental Evidence.
ABSTRACT: Economic intuition suggests that increased competition generates lower prices. However, recent theoretical work by Chen and Riordan (2008) shows that a monopolist may set a lower price in the absence of a competitor selling a differentiated product. The direction of the predicted price change is dependent upon the joint distribution of buyer values for the two products. We explore this relationship using controlled laboratory experiments. Our results indicate that the distribution of buyer values does affect prices in a manner consistent with the theoretical predictions, although price increasing competition is rare due in part to overly intense competition regardless of the distribution of buyer values.