The Bertrand-Edgeworth (BE) model describes competition among a group
of price setting sellers, each of whom faces a production capacity con
straint. We report on laboratory experiments that were designed so as
to capture essential features of BE competition. These experiments per
mit us to evaluate different theories of BE competition: Competitive e
quilibrium (CE) pricing, Edgeworth cycles in prices, mixed strategy Na
sh equilibrium (NE) in prices, and tacit collusion. The experimental r
esults indicate that while each of the theories helps to explain some
aspects of the data, none of these theories are completely consistent
with the data. In relative terms, the Edgeworth cycle theory provides
better predictions than the other three theories. Most sellers adjuste
d their prices partially to their predicted Edgeworth price. The Edgew
orth cycle theory is the only theory that predicts the kind of time de
pendence and cycling that was observed in most experiments.