Market volatility and inequality in earnings: experimental evidence

We analyze the volatility of actions in experimental oligopoly markets. Can the volatility, measured as the total variation in actions, be predicted b y inequality in earnings of the previous period? We examine two types of di fferentiated markets, Cournot and Bertrand, and two informational condition s. We find for both types of markets and regardless of the information avai lable to firms that inequality in earnings is a major factor for explaining volatility. The more equal profits are distributed, the less volatility is observed. (C) 2001 Elsevier Science B.V. All rights reserved.