The End of the Sole Mover Advantage: An Experiment

University of Siena Economics Working Paper No. 392

26 Pages Posted: 12 Jan 2004

See all articles by Laura Ferrari Bravo

Laura Ferrari Bravo

University of Rome

Luigi Luini

University of Siena - Department of Economics

Date Written: August 2003

Abstract

We present an experiment on a price-setting duopoly with symmetric production costs and asymmetric initial market shares. Firms compete for fifteen rounds facing a simulated market demand inertia, with the possibility of incurring into additional fixed marketing/advertising costs in order to offset the inertia effect. We show that subjects either reach a Stackelberg equilibrium and keep pricing differently, either price equally so as to reach a Cournot solution with elements of co-operation, or else the entrant overtakes the incumbent firm (leapfrogging). Finally, we discuss two potential economic applications for the experiment: (1) post-patent-expire competition and (2) liberalization of a former natural monopoly.

Keywords: Monopoly Expiration and Barriers to Entry, Regulation and Competition Policy

JEL Classification: L12, L13, L43

Suggested Citation

Ferrari Bravo, Laura and Luini, Luigi, The End of the Sole Mover Advantage: An Experiment (August 2003). University of Siena Economics Working Paper No. 392, Available at SSRN: https://ssrn.com/abstract=467350 or http://dx.doi.org/10.2139/ssrn.467350

Laura Ferrari Bravo

University of Rome ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

Luigi Luini (Contact Author)

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy

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