Consumer Rationing and Cournot Outcomes: Experimental Evidence

We report the results of duopoly market experiments where firms first commit to capacities and then compete in prices. The theoretical literature pertaining to these duopoly models suggests that the way residual demand is rationed is fundamental to the character of equilibrium outcomes when capacity costs are sufficiently low. The experiments test this prediction by varying capacity cost and demand-rationing schemes. We find that residual demand rationing does not significantly impact the capacity choices of experimental subjects, although it does affect pricing. Regardless of rationing scheme, the Cournot outcome is common with high capacity costs and rare with low capacity costs. doi: http://dx.doi.org/10.4284/0038-4038-2011.112