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Excess Entry in an Experimental Winner-Take-All Market

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Author Info
Urs Fischbacher
Christian Thöni

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Abstract

"Winner-Take-All"-markets, i.e. markets in which the relative and not the absolute performance is decisive, have gained in importance. Such markets have a tendency to provoke inefficiently many entries. We investigate the functioning of such markets with the help of experiments and show that there are even more inefficient entries than predicted by the Nash equilibrium. Moreover, this effect increases with group size. Quantal response equilibrium predicts the increase in group size but fails to predict the excess entry in the smaller group. We show that the excess entry is not caused by coordination failures. Furthermore, individual entry behavior is not significantly linked to risk preferences. We discuss several concepts that might explain the observed excess entry.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp086.

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Handle: RePEc:zur:iewwpx:086

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Related research
Keywords: Winner-take-all market; Excess entry; Experiment; Market entry;

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Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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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.:
  1. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics. [Downloadable!]
    Other versions:
  2. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany. [Downloadable!]
    Other versions:
  3. Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley. [Downloadable!]
  4. Selten, Reinhard & Abdolkarim Sadrieh & Klaus Abbink, 1995. "Money does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse," Discussion Paper Serie B 343, University of Bonn, Germany.
  5. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 2008. "Logit Equilibrium Models of Anomalous Behavior: What to do when the Nash Equilibrium Says One Thing and the Data Say Something Else," Handbook of Experimental Economics Results, Elsevier. [Downloadable!] (restricted)
  6. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July. [Downloadable!] (restricted)
  7. C. Monica Capra et al., 1999. "Anomalous Behavior in a Traveler's Dilemma?," American Economic Review, American Economic Association, vol. 89(3), pages 678-690, June. [Downloadable!] (restricted)
  8. Colin Camerer & Dan Lovallo, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March. [Downloadable!] (restricted)
  9. Vital Anderhub & Werner Gäuth & Wieland Mäuller & Martin Strobel, 2000. "An Experimental Analysis of Intertemporal Allocation Behavior," Experimental Economics, Springer, vol. 3(2), pages 137-152, October. [Downloadable!] (restricted)
  10. Wulf Albers & Robin Pope & Reinhard Selten & Bodo Vogt, 2000. "Experimental Evidence for Attractions to Chance," German Economic Review, Blackwell Publishing, vol. 1(2), pages 113-130, 05. [Downloadable!] (restricted)
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  11. Isaac, R Mark & Walker, James M, 1988. "Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 179-99, February. [Downloadable!] (restricted)
  12. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  13. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series 1034, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Aleksander Berentsen & Guillaume Rocheteau, . "Money and the Gains from Trade," IEW - Working Papers iewwp100, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
    • Aleksander Berentsen & Guillaume Rocheteau, 2003. "Money and the Gains from Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 263-297, February. [Downloadable!] (restricted)
  2. John Morgan & Henrik Orzen & Martin Sefton, 2006. "Network architecture and traffic flows," Discussion Papers 2006-12, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
  3. Aleksander Berentsen & Guillaume Rocheteau, . "Money and Information," IEW - Working Papers iewwp099, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  4. Christiane Ernst & Christian Thöni, 2009. "Bimodal Bidding in Experimental All-Pay Auctions," University of St. Gallen Department of Economics working paper series 2009 2009-25, Department of Economics, University of St. Gallen. [Downloadable!]
  5. Aleksander Berentsen & Guillaume Rocheteau, . "On the Efficiency of Monetary Exchange:How Divisibility of Money Matters," IEW - Working Papers iewwp101, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
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