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Author Info
Mathias Erlei () (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))

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Abstract

This paper provides experimental evidence on exit behavior of asymmetrically sized firms in a duopoly with declining demand. We conduct three treatments: (a) The basic model with indivisible real capital. The structure of this treatment represents the main findings of Ghemawat and Nalebuff (1985); (b) an extension of the basic model by introducing a bankruptcy constraint; (c) here we allow for divisible real capital (Ghemawat and Nalebuff (1990)). In all three treatments we find behavior that is, by and large, in line with subgame perfect Nash Equilibrium. However, there is a problem of multiplicity of equilibria in (b) and we find an anchor effect as well as learning effects in (c).

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Publisher Info
Paper provided by Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal) in its series TUC Working Papers in Economics with number 0005.

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Length: 15 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:tuc:tucewp:0005

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Related research
Keywords: Exit; duopoly; declining market; experimental economics;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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References listed on IDEAS
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  1. Martha A. Schary, 1991. "The Probability of Exit," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 339-353, Autumn. [Downloadable!] (restricted)
  2. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine. [Downloadable!]
  3. Francisco Ruiz-Aliseda, 2003. "Strategic Commitment Versus Flexibility in a Duopoly with Entry and Exit," Discussion Papers 1379, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, vol. 99(398), pages 949-61, December. [Downloadable!] (restricted)
  5. John Londregan, 1990. "Entry and Exit over the Industry Life Cycle," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 446-458, Autumn. [Downloadable!] (restricted)
  6. Darren Filson & Bunchon Songsamphant, . "Horizontal Mergers and Exit in Declining Industries," Claremont Colleges Working Papers 2001-13, Claremont Colleges. [Downloadable!]
    Other versions:
  7. Troske, Kenneth R, 1996. "The Dynamic Adjustment Process of Firm Entry and Exit in Manufacturing and Finance, Insurance, and Real Estate," Journal of Law & Economics, University of Chicago Press, vol. 39(2), pages 705-35, October.
  8. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-60, July. [Downloadable!] (restricted)
  9. Michael D. Whinston, 1988. "Exit with Multiplant Firms," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 568-588, Winter. [Downloadable!] (restricted)
  10. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February. [Downloadable!] (restricted)
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