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To commit or not to commit: Endogenous timing in experimental duopoly markets

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  • Huck, S.
  • Müller, W.

    (Tilburg University)

  • Normann, H.T.

Abstract

In this paper, we experimentally investigate the extended game with action commitment of Hamilton and Slutsky (1990). In their duopoly game, firms can choose their quantities in one of two periods before the market clears. If a firm commits to a quantity in period 1 it does not know whether the other firm also commits early. By waiting until period 2, a firm can observe the other firm's period 1 action. Hamilton and Slutsky predict the emergence of endogenous Stackelberg leadership. Our data, however, does not confirm the theory. While Stackelberg equilibria are extremely rare we often observe endogenous Cournot outcomes and sometimes collusive play. This is partly driven by the fact that endogenous Stackelberg followers learn to behave in a reciprocal fashion over time, i.e., they learn to reward cooperation and to punish exploitation. --

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-112549.

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Date of creation: 2002
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Publication status: Published in Games and Economic Behavior (2002) v.38, p.240-264
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-112549

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Web page: http://www.tilburguniversity.edu/

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  1. Eric van Damme & Sjaak Hurkens, 1996. "Endogenous Stackelberg leadership," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 190, Department of Economics and Business, Universitat Pompeu Fabra.
  2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262582384, December.
  3. Steffen Huck & Wieland Mueller, 1998. "Perfect versus imperfect observability---An experimental test of Bagwell's result," Experimental, EconWPA 9804001, EconWPA.
  4. Hans-Theo Normann, 1997. "Endogenous Stackelberg equilibria with incomplete information," Journal of Economics, Springer, Springer, vol. 66(2), pages 177-187, June.
  5. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 3(4), pages 367-388, December.
  6. Simon, Leo K & Stinchcombe, Maxwell B, 1995. "Equilibrium Refinement for Infinite Normal-Form Games," Econometrica, Econometric Society, Econometric Society, vol. 63(6), pages 1421-43, November.
  7. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  8. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers, Florida - College of Business Administration 88-4, Florida - College of Business Administration.
  9. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, Econometric Society, vol. 65(3), pages 517-556, May.
  10. Ellingsen, Tore, 1995. "On flexibility in oligopoly," Economics Letters, Elsevier, Elsevier, vol. 48(1), pages 83-89, April.
  11. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, Elsevier, vol. 42(1), pages 183-187, June.
  12. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, Elsevier, vol. 8(2), pages 271-280.
  13. Holt, Charles A, 1985. "An Experimental Test of the Consistent-Conjectures Hypothesis," American Economic Review, American Economic Association, American Economic Association, vol. 75(3), pages 314-25, June.
  14. Matsumura, Toshihiro, 1999. "Quantity-setting oligopoly with endogenous sequencing," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 17(2), pages 289-296, February.
  15. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 69-82, March.
  16. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, Elsevier, vol. 59(1), pages 169-182, February.
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