Collaborative Networks in Experimental Triopolies
AbstractThis paper experimentally investigates the interdependence between market competition and endogenously emerging inter-firm collaboration. We restrict attention to arrangements resulting from bilateral collaboration agreements that typically characterize real world applications in which the activity concerned is a core activity of the partnering firms and risk sharing, contract enforcement and protection of proprietory knowledge are central issues. We rely on a baseline model by Goyal and Joshi (2003) which formalizes the strategic formation of collaborative networks between firms that are competing on the same product market. This model predicts strategically stable patterns of inter-firm collaboration which are empirically observed but have been ruled out in the previous theoretical literature. In a two-stage game, firms decide to form bilateral collaboration links, whose formation is costly but reduces marginal production costs, before they compete in quantity on the market. We report the results of a series of experiments. The first experiment is designed as a straightforward theory-test simulating a one-shot interaction. We manipulate the cost of link formation in different treatments. Our data almost perfectly match the predictions for both stages whenever the link formation costs are extreme and the predicted networks symmetric (empty or complete networks). In the case of intermediate link formation costs where the predicted networks are asymmetric, subjects rarely form asymmetric networks. When they do, observed and predicted quantities are less in accordance than for symmetric networks. Collusion cannot account for the observed behavior. In our second experiment we reject the conjecture that these findings are driven out by experience in a setting in which we increase the implemented number of repetitions of the two-stage game. Finally, in our third experiment we reduce the complexity of the setting by transforming the original two-stage game into a one-stage game where the formation of inter-firm networks directly determines firms’ payoffs. These are derived from assumed equilibrium market outputs on the here absent competition stage. In this case, observed networks coincide with the predicted ones indicating that experimental subjects’ limited capacity to foresee the outcomes of the market stage may be driving the earlier discrepancies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-38.
Length: 45 pages
Date of creation: Nov 2005
Date of revision:
Find related papers by JEL classification:
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-01 (All new papers)
- NEP-COM-2006-01-01 (Industrial Competition)
- NEP-EXP-2006-01-01 (Experimental Economics)
- NEP-MIC-2006-01-01 (Microeconomics)
- NEP-NET-2006-01-01 (Network Economics)
- NEP-SOC-2006-01-01 (Social Norms & Social Capital)
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.:
- Wilfred Amaldoss & Amnon Rapoport, 2005. "Collaborative Product and Market Development: Theoretical Implications and Experimental Evidence," Marketing Science, INFORMS, vol. 24(3), pages 396-414, February.
- Falk Armin & Kosfeld Michael, 2012.
"It's all about Connections: Evidence on Network Formation,"
Review of Network Economics,
De Gruyter, vol. 11(3), pages 1-36, September.
- Falk, Armin & Kosfeld, Michael, 2003. "It's all about Connections: Evidence on Network Formation," IZA Discussion Papers 777, Institute for the Study of Labor (IZA).
- Falk, Armin & Kosfeld, Michael, 2003. "It's All About Connections: Evidence on Network Formation," CEPR Discussion Papers 3970, C.E.P.R. Discussion Papers.
- Armin Falk, Michael Kosfeld, . "It's all about Connections: Evidence on Network Formation," IEW - Working Papers 146, Institute for Empirical Research in Economics - University of Zurich.
- Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004.
"Two are few and four are many: number effects in experimental oligopolies,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 53(4), pages 435-446, April.
- 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.
- Sumit Joshi, 2000.
"Networks of Collaboration in Oligopoly,"
Econometric Society World Congress 2000 Contributed Papers
0623, Econometric Society.
- Goeree,Jacob K. & Riedl,Arno & Ule,Aljaz, 2005.
"In Search of Stars: Network Formation among Heterogeneous Agents,"
032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Goeree, Jacob K. & Riedl, Arno & Ule, Aljaz, 2009. "In search of stars: Network formation among heterogeneous agents," Games and Economic Behavior, Elsevier, vol. 67(2), pages 445-466, November.
- Aljaž Ule & Jacob K. Goeree & Arno Riedl, 2007. "In Search of Stars: Network Formation among Heterogeneous Agents," Working Papers 2007.65, Fondazione Eni Enrico Mattei.
- Goeree, Jacob K. & Riedl, Arno & Ule, Aljaz, 2005. "In Search of Stars: Network Formation among Heterogeneous Agents," IZA Discussion Papers 1754, Institute for the Study of Labor (IZA).
- Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
- Goyal, S. & Joshi, S., 2000.
"Networks of Collaboration in Oligopoly,"
Econometric Institute Research Papers
EI 9952-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Matthew O. Jackson & Asher Wolinsky, 1995.
"A Strategic Model of Social and Economic Networks,"
1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Mason, Charles F & Phillips, Owen R & Nowell, Clifford, 1992. "Duopoly Behavior in Asymmetric Markets: An Experimental Evaluation," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 662-70, November.
- Yannis Caloghirou & Stavros Ioannides & Nicholas S. Vonortas, 2003. "Research Joint Ventures," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 541-570, 09.
- Callander, Steven & Plott, Charles R., 2005. "Principles of network development and evolution: an experimental study," Journal of Public Economics, Elsevier, vol. 89(8), pages 1469-1495, August.
- Nam-Hoon Kang & Kentaro Sakai, 2000. "International Strategic Alliances: Their Role in Industrial Globalisation," OECD Science, Technology and Industry Working Papers 2000/5, OECD Publishing.
- Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
- Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
- Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
- Charles F. Mason & Owen R. Phillips, 1997. "Information And Cost Asymmetry In Experimental Duopoly Markets," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 290-299, May.
- Miguel Fonseca & Steffen Huck & Hans-Theo Normann, 2005. "Playing Cournot although they shouldn’t," Economic Theory, Springer, vol. 25(3), pages 669-677, 04.
- Marco Mantovani & Georg Kirchsteiger & Ana Mauleon & Vincent Vannetelbosch, 2011.
"Myopic or Farsighted? An Experiment on Network Formation,"
2011.45, Fondazione Eni Enrico Mattei.
- Kirchsteiger, Georg & Mantovani, Marco & Mauleon, Ana & Vannetelbosch, Vincent, 2011. "Myopic or Farsighted? An Experiment on Network Formation," CEPR Discussion Papers 8263, C.E.P.R. Discussion Papers.
- KIRCHSTEIGER, Georg & MANTOVANI, Marco & MAULEON, Ana & VANNETELBOSCH, Vincent, 2011. "Myopic or farsighted? An experiment on network formation," CORE Discussion Papers 2011007, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karin Richter).
If references are entirely missing, you can add them using this form.