Differentiated Product Markets: An Experimental Test of Two Equilibrium Concepts
AbstractIn markets with differentiated products Bertrand-Nash equilibria in pure strategies may not exist. Mixed strategies are difficult to calculate. For these cases Morgan and Shy (2000) suggest an alternative solution concept, the undercut-proof equilibrium (UPE). While the Nash-equilibrium is motivated by the question of how ones own behavior influences one''s payoff, the UPE is motivated by the question of how others'' behavior influence one''s payoff. We report on an experiment where we test these two concepts with respect to their comparative statics. Moreover we investigate the nature of subjects'' underlying thinking process. Our results provide strong evidence against the UPE and in favor of Bertrand-Nash.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 020.
Date of creation: 2005
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-COM-2005-09-29 (Industrial Competition)
- NEP-EXP-2005-09-29 (Experimental Economics)
- NEP-GTH-2005-09-29 (Game Theory)
- NEP-MIC-2005-09-29 (Microeconomics)
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