Do Opponents' Experience Matter? Experimental Evidence from a Quantity Precommitment Game
AbstractThis paper investigates why subjects in laboratory experiments on quantity precommitment games consistently choose capacities above the Cournot level - the subgame-perfect equilibrium. We argue that this puzzling regularity may be attributed to players' perceptions of their opponents' skill or level of rationality. In our experimental design, we use the level of experience (the number of periods played) as a proxy for the level of rationality and match subjects with different levels of experience. We first find evidence of capacity choices decreasing, and prices increasing, with the opponent's experience. Futhermore, we investigate the observed behavioural patterns by using the agent-form quantal response equilibrium model by McKelvey and Palfrey (1998). In particular, this framework takes into account any interaction between a player's own experience and that of his opponent. We show how the predictions of this theoretical framework fit well with the experimental data.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 531.
Length: 36 pages
Date of creation: 28 May 2003
Date of revision: 10 Nov 2011
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Oligopoly; Quantity precommitment; Experience; Rationality;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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