Does Knowledge About the Presence of a Maverick in the Market Influence the Price Level?

Abstract

We study experimental Bertrand duopoly markets where each competitor is modeled as a threeplayer team. Each team member states an individual asking price, these are summed to form the team's total asking price, and the team with the lower total asking price wins the competition.Competitors in the market can be of two different types: In consortia each member of the winning team receives her own individual asking price; in partnerships each member of the winning team receives the team's average individual asking price. We vary market composition and the availability of information regarding the type of the other team. Our results show that: (1) Prices are higher in homogenous consortia markets than in homogeneous partnership markets. (2) With "type information", Price levels in heterogeneous markets are as low as in homogenous partnership markets. (3) Without "type information", prices in heterogeneous markets are (almost) as high as in homogenous consortia markets. (4) The availability of "type information" leads to higher prices in homogeneous markets but to lower prices in heterogeneous markets. We propose an explanation of the results and discuss implications for market participants and regulators.