Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs
AbstractMullainathan, Schwartzstein, & Shleifer [Quarterly Journal of Economics, May 2008] put forward a model of coarse thinking. The essential idea behind coarse thinking is that agents put situations into categories and then apply the same model of inference to all situations in a given category. We extend the argument to strategies in a game-theoretic setting and propose the following: Agents split the choice-space into categories in comparison with salient choices and then choose each option in a given category with equal probability. We provide an alternative explanation for the puzzling results obtained in a Bertrand competition experiment as reported in Abbink & Brandts [Games and Economic Behavior, 63, 2008]
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13516.
Date of creation: 19 Feb 2009
Date of revision:
Laboratory experiments; Oligopoly; Price competition; Co-ordination games; Coarse Thinking;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-COM-2009-02-28 (Industrial Competition)
- NEP-EXP-2009-02-28 (Experimental Economics)
- NEP-GTH-2009-02-28 (Game Theory)
- NEP-MIC-2009-02-28 (Microeconomics)
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.:
- Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
- Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2006.
"Coarse Thinking and Persuasion,"
NBER Working Papers
12720, National Bureau of Economic Research, Inc.
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