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Stability of the Cournot process - experimental evidence

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  • Steffen Huck

    (Department of Economics & ELSE, University College London, Gower Street, London WC1E 6BT, UK)

  • Hans-Theo Normann

    ()
    (Department of Economics, Royal Holloway, University of London, Egham, Surrey, TW20, 0EX, U.K.)

  • Jörg Oechssler

    (Department of Economics, University of Bonn, Adenauerallee 24, 53113 Bonn, Germany)

Abstract

We report results of experiments designed to test the predictions of the best-reply process. In a Cournot oligopoly with four firms, the best-reply process should theoretically explode if demand and cost functions are linear. We find, however, no experimental evidence of such instability. Moreover, we find no differences between a market which theoretically should not converge to Nash equilibrium and one which should converge because of inertia. We investigate the power of several learning dynamics to explain this unpredicted stability.

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Bibliographic Info

Article provided by Springer in its journal International Journal of Game Theory.

Volume (Year): 31 (2002)
Issue (Month): 1 ()
Pages: 123-136

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Handle: RePEc:spr:jogath:v:31:y:2002:i:1:p:123-136

Note: Received May 1997/Revised June 2002
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Related research

Keywords: best-reply process · Cournot oligopoly · learning · experiments · imitation.;

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References

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  1. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Learning in Cournot Oligopoly - An Experiment," Game Theory and Information 9707009, EconWPA, revised 22 Jul 1997.
  2. Holt, Charles A, 1985. "An Experimental Test of the Consistent-Conjectures Hypothesis," American Economic Review, American Economic Association, vol. 75(3), pages 314-25, June.
  3. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  4. Rassenti, Stephen & Reynolds, Stanley S. & Smith, Vernon L. & Szidarovszky, Ferenc, 2000. "Adaptation and convergence of behavior in repeated experimental Cournot games," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 117-146, February.
  5. Cox, James C. & Walker, Mark, 1998. "Learning to play Cournot duopoly strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 141-161, August.
  6. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
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Citations

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Cited by:
  1. Davis, Douglas & Korenok, Oleg, 2011. "Nominal shocks in monopolistically competitive markets: An experiment," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 578-589.
  2. Arango, Santiago & Moxnes, Erling, 2012. "Commodity cycles, a function of market complexity? Extending the cobweb experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 321-334.
  3. Bigoni, Maria & Suetens, Sigrid, 2012. "Feedback and dynamics in public good experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 86-95.
  4. Halkos, George, 2009. "A Differential game approach in the case of a polluting oligopoly," MPRA Paper 23742, University Library of Munich, Germany.
  5. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  6. Halkos, George & Papageorgiou, George, 2012. "Pollution abatement and reservation prices in a market game," MPRA Paper 42150, University Library of Munich, Germany.
  7. Hommes, C.H. & Ochea, M. & Tuinstra, J., 2011. "On the stability of the Cournot equilibrium: An evolutionary approach," CeNDEF Working Papers 11-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  8. Villena, Mauricio G. & Zecchetto, Franco, 2011. "Subject-specific performance information can worsen the tragedy of the commons: Experimental evidence," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 330-347, June.
  9. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
  10. Gürerk, Özgür & Selten, Reinhard, 2010. "The Effect of Payoff Tables on Experimental Oligopoly Behavior," MPRA Paper 22489, University Library of Munich, Germany.
  11. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine.
  12. Davis, Douglas, 2011. "Behavioral convergence properties of Cournot and Bertrand markets: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 443-458.
  13. Douglas D. Davis & Korenok Oleg, 2010. "Nominal Price Shocks in Monopolistically Competitive Markets: An Experimental Analysis," Working Papers 1003, VCU School of Business, Department of Economics, revised Jun 2011.

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