Abstract
Abstract This study provides a comprehensive picture of experimental Kreps–Scheinkman markets with capacity choice in the first stage and subsequent price competition in the second. We conduct seven different treatments of such markets, varying the number of firms, demand rationing, subject matching, and subjects’ knowledge about the market mechanism. We find that only the number of firms has a persistent effect on capacity choices, whereas price choices are affected by both the number of firms and the rationing scheme. From the outset, subjects in the high-knowledge condition behave in the same way as subjects with low knowledge do in later periods after gaining experience. In all treatments, conduct is more competitive than the Cournot outcome, irrespective of the Nash equilibrium prediction. Nevertheless, the Cournot model does pack some predictive power. Under efficient demand rationing where the Cournot outcome is predicted, exact Cournot choices are more likely for both capacities and prices.
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