A central result in price theory is the law of one price: prices of a homogeneous
good sold at different locations should be equal. Empirical studies of the
law of one price find that it is often violated.
In my dissertation I explore the allocation problem that suppliers face when
supplying multiple markets. I use the experimental method to examine the effect
of an increase in the number of suppliers in a market, ceteris paribus, has on the
allocation decisions of market participants. I also use the experimental method
to investigate suppliers that are strategic and show that market concentration and
transportation costs restrict the supplier’s ability to coordinate on an efficient equilibrium.
A strategic supplier takes account his own effect on prices. Strategic supplies
face a difficult strategy coordination problem. If they cannot solve it, then an inefficient
outcome may result. Coordination failure may result in price dispersion
across the markets. Resulting price signals do not inform suppliers who should
respond and by how much. Price signals are not sufficient for suppliers to solve
the strategy coordination problem. In the experiments, I observe that increasing
the quantity of suppliers, that is the Herfindahl index of concentration, in the market
will decrease the frequency of the equilibrium strategy to be played, holding
other things constant. Increasing the number of firms in a market, ceteris paribus,
increases price dispersion and coordination on an efficient market allocation is decreased.
The experiments reveal that the ability of suppliers to coordinate is directly
correlated with the optimization premium: the expected payoff difference between
best responding to an opponents strategy and the payoff to an inferior response.
The incentive is greater to best respond when the optimization premium is larger.
Coordination at the equilibrium allocation is quicker.
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/ETD-TAMU-1090 |
| Date | 15 May 2009 |
| Creators | Wade, Chad R. |
| Contributors | Van Huyck, John B. |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | Book, Thesis, Electronic Dissertation, text |
| Format | electronic, application/pdf, born digital |
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