Price increasing competition? Experimental evidence

Abstract

Economic intuition suggests that increased competition generates lower prices. However, recent theoretical work shows that a monopolist may charge a lower price than a firm facing a competitor selling a differentiated product. The direction of the price change when competition is introduced is dependent upon the joint distribution of buyer values for the two products. We explore this relationship using controlled laboratory experiments. Our results indicate that the distribution of buyer values does affect prices in a manner consistent with the theoretical predictions, although price increasing competition is rare due in part to overly intense competition regardless of the distribution of buyer values. We also explore pricing dynamics and find that sellers are more sensitive to their rivals when buyer values are positively correlated.

Influential Factors of Sales Revenue in the Fast-Food Industry

“…However, studies have shown that a monopolist may charge lower prices than a company facing competitors selling differentiated products [15]. In any case, an effective pricing strategy is very important to help enterprises formulate quotations consistent with the competition, maximize revenue and make rich profits [16]. With the increase of e-commerce sales and the realization of frictionless comparative shopping digital commerce, the market competition has become more intense and real-time.…”