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Experimentally Observed Imitation and Cooperation in Price Competition on the Circle

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  • Reinhard Selten
  • Jose Apesteguia

Abstract

This paper reports an experiment on a location game, the so-called "Price-Competition on the Circle." There are n symmetric firms equidistantly located on a circle. Consumers are uniformly distributed. Each consumer buys one and only one unit from that firm whose price, including the cost of transportation, is the lowest, provided such a price is below a maximum willingness to pay. Experiments, extended over 200 periods, were run with 3, 4, and 5 participants. Subjects did not receive any information about the relationship between prices and profits, but they received feedback on prices and profits of two neighbors after each period. The evaluation compares predictions derived from imitation equilibrium (Selten and Ostmann 2001) and Cournot equilibrium, as well as symmetric joint-profit maximization. The results qualitatively favor imitation equilibrium, as long as no cooperation is observed.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse19_2002.

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Length: 28
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:bon:bonedp:bgse19_2002

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Keywords: Imitation; Cooperation; Location; Experiments;

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References

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  1. Dufwenberg, M. & Gneezy, U., 1998. "Price competition and market concentration: An experimental study," Discussion Paper 1998-27, Tilburg University, Center for Economic Research.
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  3. Schlag, Karl H., 1994. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Discussion Paper Serie B 296, University of Bonn, Germany.
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  17. Fernando Vega-Redondo, 1999. "Markets under bounded rationality: from theory to facts," Investigaciones Economicas, Fundación SEPI, vol. 23(1), pages 3-26, January.
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