Friday, March 12, 2010
Posted by D. Daniel Sokol
Douglas D. Davis (Department of Economics, VCU School of Business) has a paper on Advance Production, Inventories and Market Power: An Experimental Investigation.
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.