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]
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 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.:
- Shleifer, Andrei & Mullainathan, Sendhil & Schwartzstein, Joshua, 2008.
"Coarse Thinking and Persuasion,"
11022284, Harvard University Department of Economics.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.