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Strategic Experimentation with Congestion

Author

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  • Caroline D. Thomas

Abstract

This paper considers a two-player game of strategic experimentation with competition. Each agent faces a two-armed bandit problem where she continually chooses between her private, risky arm and a common, safe arm. Each agent has exclusive access to her private arm. However, the common arm can only be activated by one agent at a time. This congestion creates negative payoff externalities. Our main finding is that congestion gives rise to new strategic considerations: players perceive a strategic option value from occupying the common arm, making it more attractive than in the absence of competition or when switching is irreversible.

Suggested Citation

  • Caroline D. Thomas, 2021. "Strategic Experimentation with Congestion," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 1-82, February.
    • Handle: RePEc:aea:aejmic:v:13:y:2021:i:1:p:1-82
    DOI: 10.1257/mic.20170187
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    Cited by:

    1. Noda, Shunya, 2022. "Strategic experimentation with random serial dictatorship," Games and Economic Behavior, Elsevier, vol. 133(C), pages 115-125.
    2. Das, Kaustav & Klein, Nicolas & Schmid, Katharina, 2024. "Strategic experimentation with asymmetric safe options," Economics Letters, Elsevier, vol. 239(C).
    3. Quitz'e Valenzuela-Stookey, 2020. "Screening and Information-Sharing Externalities," Papers 2011.04013, arXiv.org.
    4. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2015. "Strategic experimentation with private payoffs," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 531-551.
    5. Cripps, Martin W. & Thomas, Caroline D., 2019. "Strategic experimentation in queues," Theoretical Economics, Econometric Society, vol. 14(2), May.
    6. Xu, Boli, 0. "Strategic exits in stochastic partnerships: the curse of profitability," Theoretical Economics, Econometric Society.
    7. Caroline D. Thomas, 2021. "Strategic Experimentation with Congestion," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 1-82, February.
    8. Atal, Vidya & Bar, Talia & Gordon, Sidartha, 2016. "Project selection: Commitment and competition," Games and Economic Behavior, Elsevier, vol. 96(C), pages 30-48.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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