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Bilateral oligopoly in pollution permit markets: experimental evidence
- Schnier, Kurt, Doyle, Martin, Rigby, James R., Yates, Andrew J.
- Economic Inquiry 2014 v.52 no.3 pp. 1060
- market structure, markets, mathematical models, oligopoly, pollution, supply balance
- We experimentally investigate behavior in a bilateral oligopoly using a supply function equilibria model (Klemper and Meyer 1989; Hendricks and McAfee 2010; Malueg and Yates 2009). We focus on the role that market size and the degree of firm heterogeneity have on the market equilibrium. Our results indicate that subjects within the experiment recognize the strategic incentives in a bilateral oligopoly, but they do not exploit these incentives to the exact magnitude predicted by theory. We find weaker support for predicted market outcomes, as market efficiency does not depend on market size, and in some cases buyers or sellers are more successful at extracting the rents from the market.