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Spatial Competition with Three Firms: An Experimental Study

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Author Info
Collins, Richard
Sherstyuk, Katerina

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Abstract

This article reports the results of an experimental study of the three firm location problem. We compare the subjects' behavior in the experiments with the symmetric mixed strategy Nash equilibrium calculated by Shaked. Overall, the findings are consistent with the equilibrium prediction. However, the subjects' locations were significantly more dispersed than predicted by the theory. Three alternative explanations of this phenomenon--inexperience, approximate equilibrium behavior and risk aversion--are suggested and evaluated for their predictive power. Special attention is paid to risk aversion. Copyright 2000 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 38 (2000)
Issue (Month): 1 (January)
Pages: 73-94
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Handle: RePEc:oup:ecinqu:v:38:y:2000:i:1:p:73-94

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Osborne Martin J., 1993. "Candidate Positioning and Entry in a Political Competition," Games and Economic Behavior, Elsevier, vol. 5(1), pages 133-151, January. [Downloadable!] (restricted)
    Other versions:
  2. de Palma, Andre & Ginsburgh, Victor & Thisse, Jacques-Francois, 1987. "On Existence of Location Equilibria in the 3-Firm Hotelling Problem," Journal of Industrial Economics, Blackwell Publishing, vol. 36(2), pages 245-52, December. [Downloadable!] (restricted)
  3. Forsythe, Robert, et al, 1996. "An Experimental Study of Voting Rules and Polls in Three-Candidate Elections," International Journal of Game Theory, Springer, vol. 25(3), pages 355-83.
  4. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 1-26, January. [Downloadable!] (restricted)
  5. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Blackwell Publishing, vol. 42(1), pages 27-49, January. [Downloadable!] (restricted)
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  6. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 27-41, January. [Downloadable!] (restricted)
  7. Reinhard Selten, 1998. "Axiomatic Characterization of the Quadratic Scoring Rule," Experimental Economics, Springer, vol. 1(1), pages 43-61, June. [Downloadable!] (restricted)
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  8. Berg, Joyce E, et al, 1986. "Controlling Preferences for Lotteries on Units of Experimental Exchange," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 281-306, May. [Downloadable!] (restricted)
  9. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  10. Brown-Kruse, Jamie & Cronshaw, Mark B & Schenk, David J, 1993. "Theory and Experiments on Spatial Competition," Economic Inquiry, Oxford University Press, vol. 31(1), pages 139-65, January.
  11. Olson, Mark & Porter, David, 1994. "An Experimental Examination into the Design of Decentralized Methods to Solve the Assignment Problem with and without Money," Economic Theory, Springer, vol. 4(1), pages 11-40, January.
  12. Osborne, Martin J & Pitchik, Carolyn, 1986. "The Nature of Equilibrium in a Location Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 223-37, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrea Mangani & Paolo Patelli, 2002. "The Max-Min Principle of Product Differentiation: An Experimental Analysis," LEM Papers Series 2002/05, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  2. Lisa R. Anderson & Beth A. Freeborn & Jessica Holmes & Mark Jeffreys & Dan Lass & Jack Soper, 2006. "Location, Location, Location! A Classroom Demonstration of the Hotelling Model," Working Papers 44, Department of Economics, College of William and Mary, revised 05 Feb 2007. [Downloadable!]
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