"Price and quantity experimentation: a synthesis"JEL codes: D83; L13
Abstract: This paper compares experimentation about product differentiation in four market settings: quantity-setting and price-setting monopoly, Cournot and Bertrand duopoly. It shows that quantity-setting firms always experiment by raising their quantities. A price-setting monopolist does not experiment, and the value of information to Bertrand duopolists may be positive or negative depending on the degree of product differentiation. When information is valuable, price-setting duopolists experiment by lowering privces. Numerical simulations indicate that the probability of learning the truth is higher in a Bertrand duopoly than in a Cournot duopoly. The comparison between experimentation in a quantity-setting monopoly and duopoly is ambiguous.
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