We examine the strategic behavior of leaders and followers in sequential duopoly experiments in which followers either perfectly observe the leaders’ actions or else observe nothing. Our experiments show that consistent with the theory, leaders enjoy a greater …rst-mover advantage when followers observe their actions with higher probability. However, the results also show that (i) leaders do not fully exploit their …rst-mover advantage, (ii) when informed, followers tend to overreact slightly (i.e., choose quantities above their best-response to the leaders’ quantities), and (iii) when uninformed, followers try to predict leaders’ quantities and react optimally. This suggests that followers view the symmetric Cournot outcome as “fair” and whenever they observe leaders who are trying to exploit their …rst-mover advantage, they “punish” them by overreacting. Such punishments in turn induce leaders to behave more softly than the theory predicts.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number
2002-10.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
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.:
Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991.
"Observable Contracts: Strategic Delegation and Cooperation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-59, August.
[Downloadable!] (restricted)
Other versions:
Fershtman, Chaim & Kalai, Ehud, 1997.
"Unobserved Delegation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 763-74, November.
Other versions:
Fershtman, C. & Kalai, E., 1993.
"Unobserved Delegation,"
Papers
10-93, Tel Aviv - the Sackler Institute of Economic Studies.
Chaim Fershtman & Ehud Kalai, 1993.
"Unobserved Delegation,"
Discussion Papers
1043, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
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.)