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Wilson, Bart J. --- "Using Experimental Economics to Understand Competition" [2011] ELECD 349; in Drexl, Josef; Kerber, Wolfgang; Podszun, Rupprecht (eds), "Competition Policy and the Economic Approach" (Edward Elgar Publishing, 2011)

Book Title: Competition Policy and the Economic Approach

Editor(s): Drexl, Josef; Kerber, Wolfgang; Podszun, Rupprecht

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848448841

Section: Chapter 12

Section Title: Using Experimental Economics to Understand Competition

Author(s): Wilson, Bart J.

Number of pages: 15

Extract:

12. Using experimental economics to
understand competition
Bart J. Wilson*

1. INTRODUCTION

What can a college sophomore tell us about strategic market interac-
tions of an antitrust concern? Verbally not much and certainly nothing
constructive for a deposition on a matter headed for litigation. What then
can we learn from an undergraduate setting prices for a fictitious com-
modity in a market conducted in a computer laboratory over the course
of 90 minutes? The answer lies not in asking what any single student can
articulate about what he knows about market competition but, rather, in
observing what groups of cash-motivated participants do and don't do
when faced with a focussed task replicated under a common set of initial
conditions.
Experimental economics is a laboratory method of inquiry for studying
how individuals interact in controlled settings defined by a specific set of
rules. When applied to issues of antitrust, the rules typically resemble an
auction or another market institution in which, for salient rewards, people
`buy' or `sell' products.
Figure 12.1 summarizes the generic structure of an economic system
in the laboratory. At the centre of a market experiment is the institution.
A market institution is comprised of all the detailed rules, formal and
informal, that define what market participants can and cannot do. For
example, stock exchanges formally require members to submit asks for
their offers to sell and buyers can either accept such offers or submit their
own bids to buy, which the sellers can accept. ...