Akademik Veri Yönetim Sistemi
Başçı E. (Yürütücü), Eker E. E., Kasap O., Yılmaz N.
Yükseköğretim Kurumları Destekli Proje, BAP Araştırma Projesi, 2023 - 2025
Price formation is a key subject of study in the field of economics. Deviations from a perfectly competitive equilibrium pricing behavior are known to exert significant losses on the society. Price competition in posted offer markets has a long and well established theoretical background. Yet there are surprisingly few experimental studies in the area of price setting oligopolies. This project is an attempt to contribute to the experimental literature in a dynamic Bertrand-Edgeworth setup. Such oligopolistic models of price competition have been studied extensively in many the theoretical and applied empirical papers. The most relevant theoretical paper for this project is the work of Maskin and Tirole (1988). This paper finds two equilibria, both with significant degree of deviations from competitive equilibrium. Therefore, there is a significant amount of capacity under-utilization in both of the dynamic equilibria of the model. The only experimental study that attempts to study Maskin and Tirole’s dynamic pricing model in a laboratory setting is Healy et al. (2014). This experimental work uses a fixed discount rate of 0.95 and finds that one of the equilibria of Maskinand Tirole (1988), namely “Edgeworth cycles,” emerge as the empirical outcome in most runs of the experiments. The Healy et al. (2014) study does not consider the variations of the results for different patience levels and different initial conditions. Futhermore, neither Maskin and Tirole’s theoretical work, nor the experimental follow-up or Healy et al. considers the important case of capacity constraints. This project aims to fill that gap. The first part of our project will consider the case when capacity constraints are not binding for the firms so that sales are “demand determined”. Here, the focus of the experimental design will be on whether the “Edgeworth cycles” or any other form of inefficient pricing persist under a 2 by 4 experimental design. The treatments will have variations in patience levels in one dimension and initial price conditions in the other. We will consider two discount factors, high and low, and four initial prices, competitive marginal cost, low margin, monopoly margin and high margin. Our hypothesis is that these variations in the experimental treatments would matter in equilibrium selection and hence the degree of social inefficiency arising from capacity under-utilization. The second part of our project will consider the case when capacity constraints are binding. The same 2 by 4 experimental design will be utilized for the case under capacity constraints. Our hypothesis here is that “Edgeworth cycles” and the associated “Bertrand competition sequences” will persist in this case as well. The social loss associated with capacity under-utilization will also be reported as a by-product of the experiments. The results will be relevant for competition theory and policy, as well as for macroeconomic theory and policy.