Does opponents’ experience matter? Experimental evidence from a quantity precommitment game
AbstractThis paper investigates why subjects in laboratory experiments on quantity precommitment games consistently choose capacities above the Cournot level – the subgame-perfect equilibrium. We argue that this puzzling regularity may be attributed to players’ perceptions of their opponents’ skill or level of rationality. We first show theoretically that it is the case by modelling a two-stage game of capacity investment and pricing with bounded rational players. We then design an experiment in which we use the level of experience as a proxy for the level of rationality and match subjects with different levels of experience. We find significant differences in behavior depending on opponents’ experience; moreover, players facing inexperienced players tend to choose higher capacities than they would otherwise.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 84 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/jebo
Experience; Experiment; Oligopoly; Quantity precommitment; Rationality;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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