SEQUENTIAL PRICE SETTING: THEORY AND EVIDENCE FROM A LAB EXPERIMENT
Peer reviewed, Journal article
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https://hdl.handle.net/11250/3149097Utgivelsesdato
2023Metadata
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Sammendrag
In the Varian (1980; American Economic Review 70(4) (1980), 651–59) model of price competition, a change from simultaneous to sequential price setting dramatically changes equilibrium strategies, and in the unique symmetric, equilibrium prices are pushed up to the monopoly price. There also exists an asymmetric equilibrium with lower average prices. Our main contribution is to test these predictions in the laboratory. Our data strongly support the qualitative model predictions. However, a fraction of players set low prices in accordance with the asymmetric equilibrium, which is puzzling. We show that the puzzle to a large extent can be resolved by introducing competitive preferences in the model. SEQUENTIAL PRICE SETTING: THEORY AND EVIDENCE FROM A LAB EXPERIMENT