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Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets

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  • Santos-Pinto, Luís

Abstract

The prediction of asymmetric equilibria with Stackelberg outcomes is clearly the most frequent result in the endogenous timing literature. Several experiments have tried to validate this prediction empirically, but failed to find support for it. By contrast, the experiments find that simultaneous-move outcomes are modal and that behavior in endogenous timing games is quite heterogeneous. This paper generalizes Hamilton and Slutsky’s (1990) endogenous timing games by assuming that players are averse to inequality in payoffs. I explore the theoretical implications of inequity aversion and compare them to the empirical evidence. I find that this explanation is able to organize most of the experimental evidence on endogenous timing games. However, inequity aversion is not able to explain delay in Hamilton and Slutsky’s endogenous timing games.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3142.

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Date of creation: 06 Feb 2006
Date of revision: 27 Apr 2007
Handle: RePEc:pra:mprapa:3142

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Keywords: Endogenous Timing; Cournot; Stackelberg; Inequity Aversion;

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References

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  1. Ellingsen, Tore, 1995. "On flexibility in oligopoly," Economics Letters, Elsevier, vol. 48(1), pages 83-89, April.
  2. Steffen Huck & Wieland Müller & Hans-Theo Normann, 1999. "To commit or not to commit: Endogenous timing in experimental duopoly markets," Experimental 9906002, EconWPA.
  3. Muller, Wieland, 2006. "Allowing for two production periods in the Cournot duopoly: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 100-111, May.
  4. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Miguel Fonseca & Steffen Huck & Hans-Theo Normann, 2005. "Playing Cournot although they shouldn’t," Economic Theory, Springer, vol. 25(3), pages 669-677, 04.
  6. Damme, E.E.C. van & Hurkens, J.P.M., 1996. "Endogenous Stackelberg Leadership," Discussion Paper 1996-115, Tilburg University, Center for Economic Research.
  7. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  8. Fonseca, M.A. & Müller, W. & Normann, H.T., 2006. "Endogenous timing in duopoly: Experimental evidence," Open Access publications from Tilburg University urn:nbn:nl:ui:12-193647, Tilburg University.
  9. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  10. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
  11. 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.
  12. Robson, Arthur J, 1990. "Duopoly with Endogenous Strategic Timing: Stackelberg Regained," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 263-74, May.
  13. Pal, Debashis, 1991. "Cournot duopoly with two production periods and cost differentials," Journal of Economic Theory, Elsevier, vol. 55(2), pages 441-448, December.
  14. Santos-Pinto, Luís, 2006. "Reciprocity, inequity-aversion, and oligopolistic competition," MPRA Paper 3143, University Library of Munich, Germany, revised 14 Apr 2007.
  15. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
  16. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
  17. Giovanni Maggi, 1996. "Endogenous Leadership in a New Market," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 641-659, Winter.
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Citations

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Cited by:
  1. Anders U. Poulsen & Michael W. M. Roos, 2009. "Do people make strategic commitments? Experimental evidence on strategic information avoidance," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 09-01, School of Economics, University of East Anglia, Norwich, UK..
  2. Jeroen Hinloopen & Wieland Mueller & Hans-Theo Normann, 2011. "Output Commitment through Product Bundling: Experimental Evidence," Tinbergen Institute Discussion Papers 11-170/1, Tinbergen Institute, revised 14 Jul 2013.
  3. Daniel Carvalho & Luís Santos-Pinto, 2014. "A cognitive hierarchy model of behavior in the action commitment game," International Journal of Game Theory, Springer, vol. 43(3), pages 551-577, August.
  4. Santos-Pinto, Luís, 2006. "Reciprocity, inequity-aversion, and oligopolistic competition," MPRA Paper 3143, University Library of Munich, Germany, revised 14 Apr 2007.
  5. Daniele Nosenzo & Martin Sefton, 2009. "Endogenous Move Structure And Voluntary Provision Of Public Goods: Theory And Experiment," Discussion Papers 2009-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  6. Daniel Carvalho & Luis Santos-Pinto, 2010. "A Cognitive Hierarchy Model of Behavior in Endogenous Timing Games," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 10.06, Université de Lausanne, Faculté des HEC, DEEP.
  7. Fonseca, M.A. & Müller, W. & Normann, H.T., 2005. "Endogenous Timing in Duopoly: Experimental Evidence," Discussion Paper 2005-77, Tilburg University, Center for Economic Research.
  8. Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer, vol. 12(3), pages 289-317, September.
  9. Doruk İriş & Luís Santos-Pinto, 2014. "Experimental Cournot oligopoly and inequity aversion," Theory and Decision, Springer, vol. 76(1), pages 31-45, January.

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