The End of the Sole Mover Advantage : An Experiment

We present an experiment on a price-setting duopoly with symmetric production costs and asymmetric initial market shares. Firms compete for fifteen rounds facing a simulated market demand inertia, with the possibility of incurring into additional fixed marketing/advertising costs in order to offset the inertia effect. We show that subjects either reach a Stackelberg equilibrium and keep pricing differently, either price equally so as to reach a Cournot solution with elements of co-operation, or else the entrant overtakes the incumbent firm (leapfrogging). Finally, we discuss two potential economic applications for the experiment: (1) post-patent-expire competition and (2) liberalization of a former natural monopoly