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Tacit Coordination in a Decentralized Market Entry Game with Fixed Capacity

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  • Rami Zwick

    ()

  • Amnon Rapoport

    ()

Abstract

We focus on a class of market entry games in which a newly emergent market opportunity may be fruitfully exploited by no more than a commonly known, exogenously determined number of firms. Our results show significant effects of the parameters manipulated in the study, namely, the market capacity, entry fee, and method of subject assignment to groups (fixed vs. random). In contrast to previous market entry games with linear payoff functions, we find no evidence of convergence to equilibrium play on the aggregate level. Shifting the focus of the analysis from the aggregate to the individual level, four clusters of subjects are identified. The patterns are: (1) choice of the same action that is independent of the parameters of the game or the outcome of previous presentations of the same game; (2) random choices with probabilities prescribed by the equilibrium solution for risk-neutral players; (3) random choices with probabilities equal to the individual observed overall proportion of entry; and (4) sequential dependencies that violate any model that assumes randomization. Subjects in the fourth and largest category are shown to adjust their choices in accordance with a simple principle of strategic reasoning. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1020892405622
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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 5 (2002)
Issue (Month): 3 (December)
Pages: 253-272

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Handle: RePEc:kap:expeco:v:5:y:2002:i:3:p:253-272

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: coordination; market entry game; experiment; Nash equilibrium;

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  1. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
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  3. J. B. Van Huyck & R. C. Battalio & R. O. Beil, 2010. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 661465000000000393, David K. Levine.
  4. Ochs, Jack, 1990. "The Coordination Problem in Decentralized Markets: An Experiment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 545-59, May.
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  8. Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, vol. 80(1), pages 218-33, March.
  9. Ernan Haruvy & Dale O. Stahl & Paul W. Wilson, 2001. "Modeling And Testing For Heterogeneity In Observed Strategic Behavior," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 146-157, February.
  10. Nick Feltovich, 2000. "Reinforcement-Based vs. Belief-Based Learning Models in Experimental Asymmetric-Information," Econometrica, Econometric Society, vol. 68(3), pages 605-642, May.
  11. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  12. Sundali, James A. & Rapoport, Amnon & Seale, Darryl A., 1995. "Coordination in Market Entry Games with Symmetric Players," Organizational Behavior and Human Decision Processes, Elsevier, vol. 64(2), pages 203-218, November.
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Cited by:
  1. Giovanna Devetag & Francesca Pancotto & Thomas Brenner, 2011. "The Minority Game Unpacked: Coordination and Competition in a Team-based Experiment," CEEL Working Papers 1102, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  2. Giulio Bottazzi & Giovanna Devetag, 2002. "Coordination and Self-Organization in Minority Games: Experimental Evidence," LEM Papers Series 2002/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  3. Pietro Dindo & Jan Tuinstra, 2006. "A Behavioral Model for Participation Games with Negative Feedback," Tinbergen Institute Discussion Papers 06-073/1, Tinbergen Institute.
  4. Kets, W., 2007. "The Minority Game: An Economics Perspective," Discussion Paper 2007-53, Tilburg University, Center for Economic Research.
  5. Rami Zwick & Amnon Rapoport & Alison King Chung Lo, 2001. "Behavioral Strategies in Repeated Pure Coordination Games," Experimental 0110004, EconWPA.
  6. Pietro Dindo & Jan Tuinstra, 2010. "A class of evolutionary models for participation games with negative feedback," LEM Papers Series 2010/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  7. Daniel Cracau & Abdolkarim Sadrieh, 2014. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels," FEMM Working Papers 140003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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