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Social competition in low-information Cournot markets

Author

Listed:
  • Enrique Fatas

    (University of East Anglia)

  • Antonio J. Morales

    (University of Malaga)

  • Ainhoa Jaramillo-Gutierrez

    (University Jaume I of Castellon)

Abstract

We offer theoretical and experimental evidence suggesting that social competition has a first order effect in low-information Cournot markets. Using data from a stylized laboratory experiment, we show that firms use average market profits as a reference point to assess their relative performance following a simple but powerful logic: earnings above the market reinforces their current choice; scoring below the market prompts dissatisfaction and experimentation with new quantities. This "win-stay, lose-shift" heuristics converges to the competitive outcome because the Walrasian quantity is the unique action that never yields profits below the average profits in the market. This prediction is neatly confirmed in the lab. Social competition leads to Walrasian quantities even when firms do not receive information about the most successful rival, and imitation is not possible.

Suggested Citation

  • Enrique Fatas & Antonio J. Morales & Ainhoa Jaramillo-Gutierrez, 2015. "Social competition in low-information Cournot markets," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-15, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:15-15
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    Cited by:

    1. Alós-Ferrer, Carlos & García-Segarra, Jaume & Ritschel, Alexander, 2018. "Performance curiosity," Journal of Economic Psychology, Elsevier, vol. 64(C), pages 1-17.

    More about this item

    Keywords

    experiments; Cournot competition; Walrasian convergence; social comparison;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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