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Excess Entry in an Experimental Winner-Take-All Market

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  • Urs Fischbacher
  • Christian Thöni

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 - University of Zurich in its series IEW - Working Papers with number 086.

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Handle: RePEc:zur:iewwpx:086

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

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Cited by:
  1. Aleksander Berentsen & Guillaume Rocheteau, . "Money and the Gains from Trade," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 100, Institute for Empirical Research in Economics - University of Zurich.
  2. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 915-944, October.
  3. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(8), pages 1621-1649, November.
  4. Christiane Ernst & Christian Thöni, 2009. "Bimodal Bidding in Experimental All-Pay Auctions," University of St. Gallen Department of Economics working paper series 2009, Department of Economics, University of St. Gallen 2009-25, Department of Economics, University of St. Gallen.
  5. Ottone, Stefania & Ponzano, Ferruccio, 2010. "Competition and cooperation in markets. The experimental case of a winner-take-all setting," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 39(2), pages 163-170, April.
  6. Brice Corgnet & Roberto Hernán-González & Eric Schniter, 2013. "Why Real Leisure Really Matters: Incentive Effects on Real Effort in the Laboratory," Working Papers, Chapman University, Economic Science Institute 13-22, Chapman University, Economic Science Institute.

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