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Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs

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  • Siddiqi, Hammad

Abstract

Mullainathan, 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13516.

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Date of creation: 19 Feb 2009
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Handle: RePEc:pra:mprapa:13516

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Keywords: Laboratory experiments; Oligopoly; Price competition; Co-ordination games; Coarse Thinking;

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  1. Shleifer, Andrei & Mullainathan, Sendhil & Schwartzstein, Joshua, 2008. "Coarse Thinking and Persuasion," Scholarly Articles 11022284, Harvard University Department of Economics.
  2. 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.
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