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An experiment on spatial competition with endogenous pricing

Barreda-Tarrazona, I., García-Gallego, A., Georgantzis, N., Andaluz-Funcia, J. and Gil-Sanz, A. (2011) An experiment on spatial competition with endogenous pricing. International Journal of Industiral Organization, 29 (1). pp. 74-83. ISSN 0167-7187

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To link to this item DOI: 10.1016/j.ijindorg.2010.02.001


Hotelling's (1929) principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far. We report results from experimental spatial duopolies designed to address this issue. The levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion. The observed prices are consistent with collusion attempts. Our main findings are robust to variations in three experimental conditions: automated vs. human market sharing rule for ties, individual vs. collective decision making, and even vs. odd number of locations.

Item Type:Article
Divisions:No Reading authors. Back catalogue items
Life Sciences > School of Agriculture, Policy and Development > Department of Agri-Food Economics & Marketing
ID Code:34671
Uncontrolled Keywords:Product differentiation; Price competition; Sharing rules; Risk-aversion; Firm; Information; Stability; Market; Game
Additional Information:Special Issue: Experiments in Industrial Organization

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