Abstract:

We conducted an experimental study of price competition in a duopolistic market. The market was operationalized as a repeated game between two teams  with one, two, or three players in each team. Each player simultaneously demanded a price, and the team whose total asking price was smaller won the competition and was paid its asked price. The losing team was paid nothing. In case of a tie, the teams split the asking price. For teams with multiple players we manipulated the way in which the team s profit was divided between the team members. In one treatment each team member was paid his or her asking price if the team won, and half that if the game was tied, while in the other treatment the team s profit for winning or tying the game was divided equally among its members. We found that asking (and winning) prices were significantly higher in competition between individuals than in competition between two- or three-person teams. There were no general effects of team size, but prices were sustained at a higher level when each team member was paid his or her own asked price than when the team s profits were divided equally.

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