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Economies of Scale, Natural Monopoly and Imperfect Competition in an Experimental Market

Plott, Charles R. and Sugiyama, Alexandre Borges and Elbaz, Gilad (1994) Economies of Scale, Natural Monopoly and Imperfect Competition in an Experimental Market. Social Science Working Paper, California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper reports on the behavior of markets in which all agents have identical costs with economies of scale over the entire range of demand. Each firm, by choosing a larger scale of plant and a larger volume, can experience lower average cost. Thus the markets are characterized by the fundamental technological property that has motivated decades of theorizing about natural monopoly and imperfect competition. The primary question posed by the research is whether or not a natural monopoly emerges and sets prices at monopoly levels or whether the data are more closely approximated by some alternative model of imperfect competition such as monopolistic competition, Cournot oligopoly or contestable market theory. The results are that monopoly emerges and charges prices closely approximated by contestable market theory. No support is found for Cournot forms of oligopoly or for other types of monopolistic competition.

Item Type:Report or Paper (Working Paper)
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Additional Information:Revised version. This paper began with a project in an experimental economics class at Caltech in which G. Elbaz and A. Sugiyama were undergraduate students. In addition to the authors, Peter Ying contributed to the project during the initial stages of research. The comments of William Novshek are also appreciated. The financial support of the National Science Foundation and the Caltech Laboratory for Experimental Economics and Political Science is gratefully acknowledged. Published as Plott, Charles R., Alexandre Borges Sugiyama, and Gilad Elbaz. "Economies of scale, natural monopoly, and imperfect competition in an experimental market." Southern Economic Journal (1994): 261-287.
Group:Social Science Working Papers
Funding AgencyGrant Number
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:Modeling, Market prices, Monopoly, Average cost, Market demand, Economic models, Imperfect competition, Marginal costs, Natural monopolies, Opportunity costs
Series Name:Social Science Working Paper
Record Number:CaltechAUTHORS:20170830-143409554
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80985
Deposited By: Jacquelyn Bussone
Deposited On:30 Aug 2017 22:11
Last Modified:03 Oct 2019 18:37

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