Edited by Victor J. Tremblay, Elizabeth Schroeder and Carol Horton Tremblay
Chapter 11: One-armed bandits and behavioral economics
We analyze the slot machine market of South Florida to test for standard price competition. Standard Bertrand competition suggests that average price and price dispersion should both decline over time. Although casinos are differentiated by location and other amenities, if consumers demand higher jackpots over time, average prices are expected to decline. In the absence of bounded rationality or other consumer biases we would expect price dispersion to decrease as well. The empirical evidence suggests that price dispersion is increasing over time in this slot machine market contrary to standard price competition.
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