By Jeroen Hinloopen, Hans-Theo Normann

Economists have began to make a lot higher use of experimental tools of their examine. The award of the Nobel Prize in 2002 to Vernon Smith proven that using such tools is now obvious as an immense and credible a part of the economist's toolkit. In Experiments and festival coverage, best students within the box of experimental economics survey using experimental equipment and express how they could support us to appreciate enterprise behaviour with regards to a number of sorts of pageant coverage. Chapters are geared up when it comes to the most fields of pageant coverage - collusion, abusive practices and mergers - and there's additionally a separate part facing auctions and procurement. Written in a transparent and non-technical sort, this quantity is a superb creation to what the more and more very important box of experimental economics can carry to the idea and perform of festival coverage.

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Also, it may be fruitful to have experiments that are more case-based and are inspired by specific antitrust cases. The classic example of this is Grether and Plott (1984). g. the survey by Suslow and Levenstein, 2006). This is also true in experimental work on cartels. In some experimental markets, firms are able to collude, whereas in others they are not, even if these markets are subject to the exact same experimental treatment. Something similar seems to hold in the real world. In real cartels, the challenge for firms is often to find robust cartel agreements that survive external shocks (again, see Suslow and Levenstein, 2006).

The strategic analysis of the stage game is straightforward and leads to the well-known Bertrand paradox (Bertrand, 1883). Whatever the price set by the competitor, each firm’s best response is to slightly undercut that price. It follows that if there is no smallest money unit, there can be no equilibrium with a positive price, and the unique equilibrium is one in which both firms set a price of zero and hence make zero profit. If a smallest money unit exists (as it typically does in both real life and experimental environments), then another equilibrium exists in which both firms set their price equal to the smallest money unit.

If small institutional details are indeed that important, then that also implies that it is extremely difficult to use experiments in order to evaluate whether real-world industries are susceptible to collusion. References Abreu, D. (1986), Extremal equilibria of oligopolistic supergames, Journal of Economic Theory, 39, 191–225. , W. Gu¨th, U. -T. Normann (2003), Capacity choices and price competition in experimental markets, Experimental Economics, 6, 27–52. Axelrod, R. (1984), The Evolution of Cooperation.

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