Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition
AbstractWe consider a duopoly pricing game with a unique Bertrand-Nash equilibrium. The high-price firm has a nonvanishing market share, however, and intuition suggests that observed prices may be positively related to this market share. This relationship is implied by a model in which players make noisy (logit) best responses to expected payoff differences. The resulting logit equilibrium model was used to design an experiment in which the high-price firm's market share varies. The model accurately predicts the final-period price averages. A naive learning model predicts the observed differences in the time paths of average prices. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 43 (2002)
Issue (Month): 3 (August)
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Other versions of this item:
- C. Monica Capra & Jacob K. Goeree & Rosario Gomez & Charles A. Holt, 2000. "Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition," Virginia Economics Online Papers 336, University of Virginia, Department of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
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