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Industrial Organization Theory and Experimental Economics

Plott, Charles R. (1982) Industrial Organization Theory and Experimental Economics. Journal of Economic Literature, 20 (4). pp. 1485-1527. ISSN 0022-0515.

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[Introduction] The introduction of laboratory experimentation in economics was motivated by theories of industrial organization and market performance. The first published market experiments were those of Edward H. Chamberlin (1948). He explored the behavioral characteristics of markets he described as being "purely" but not "perfectly" competitive and he thought that the principles of monopolistic competition would be more useful than the textbook theory of demand and supply in explaining the observed behavior. Austin C. Hoggatt (1959) and Heinz Sauermann and Reinhard Selten (1959) both focused on markets with three competitors and independently provided the first experimental evidence that the Cournot model might be a reasonably accurate description of oligopolistic behavior. Oligopoly and bilateral monopoly motivated the classic work of Lawrence E. Fouraker and Sidney Siegel (1963) which introduced several of the techniques still used today. Vernon L. Smith's (1962) sensitivity to the organization of the U.S. security industry led him to the fundamental discovery that the law of competitive demand and supply can be observed operating in an experimental environment. The field of experimental economics has experienced substantial evolution during the intervening twenty years. This paper is an attempt to provide an introduction to the methods and an assessment of available results which might now be useful to the students of industrial organization. The paper has six sections. Section I outlines some of the step-by-step details of laboratory procedures. Sections II through IV summarize experimental results. In Section II markets with several participants are analyzed and compared to a competitive model. Section III summarizes monopoly results. Section IV, which is the longest, deals with oligopoly. This organization of the material is natural from the point of view of traditional theory, but the organization is not necessarily natural from the point of view of results.

Item Type:Article
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URLURL TypeDescription ItemSocial Science Working Paper 405
Additional Information:The financial support of the Federal Trade Commission, the National Science Foundation, the Caltech Program for Enterprise and Public Policy, the Guggenheim Foundation and the Center for Advanced Study in the Behavioral Sciences at Stanford is gratefully acknowledged. Comments by Ron Harstad, Roger Noll, Steve Salop, Reinhard Selten and Vernon Smith have been helpful and the valuable assistance of Barbara Yandell cannot be overemphasized.
Funding AgencyGrant Number
Federal Trade CommissionUNSPECIFIED
Caltech Program for Enterprise and Public PolicyUNSPECIFIED
Guggenheim FoundationUNSPECIFIED
Center for Advanced Study in the Behavioral Sciences (Stanford)UNSPECIFIED
Subject Keywords:Market prices, Auctions, Auction markets, Monopoly, Experimental economics, Industrial economics, Economic theory, Supply, Experimentation, Market equilibrium
Issue or Number:4
Record Number:CaltechAUTHORS:20171004-173054153
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82104
Deposited By: Katherine Johnson
Deposited On:05 Oct 2017 00:40
Last Modified:03 Oct 2019 18:50

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