Minimum and Maximum Available Prices and the outcome of Competition: A Meta-Analysis of Oligopoly Experiments

Abstract

How non-binding minimum and maximum available prices affect prices in oligopoly market is still undetermined. A focal price effect exists in many field studies but so far no strong evidence is shown in laboratory experiments. In this thesis, the CH model, as an alternative of standard Nash equilibrium theory, is used to give a reasonable explanation why minimum and maximum available prices matter. Then a meta-analysis is taken to examine if those prices affect average prices and compare the effects under different experiment settings, like randomly matched or repeated games, Cournot or Bertrand competitions. The results show that available minimum and maximum prices have a significant positive effect on the average price controlling for the effect of the Nash Equilibrium price under almost all set-ups, which satisfies the prediction of CH model; round effects and market size matter in different way when market set-ups change. At the end, I run my own experiment of a Bertrand duopoly game with randomly re-matched subjects and the result is consistent with what I find in the meta-study.