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Making sense of the experimental evidence on endogenous timing in duopoly markets

  • Santos-Pinto, Luís

The prediction of asymmetric equilibria with Stackelberg outcomes is clearly the most frequent result in the endogenous timing literature. Several experiments have tried to validate this prediction empirically, but failed to find support for it. In contrast, these experiments find that simultaneous-move outcomes are modal and that behavior in endogenous timing games is quite heterogeneous. This paper generalizes Hamilton and Slutsky's (Hamilton, J., Slutsky, S., 1990. Endogenous timing in duopoly games: Stackelberg or Cournot equilibria. Games and Economic Behavior 2, 29-46) endogenous timing games by assuming that players are averse to inequality in payoffs. I explore the theoretical implications of inequity aversion and compare them to the empirical evidence. I find that this explanation is able to organize most of the experimental evidence on endogenous timing games. However, inequity aversion is not able to explain delay in Hamilton and Slutsky's endogenous timing games.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 68 (2008)
Issue (Month): 3-4 (December)
Pages: 657-666

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Handle: RePEc:eee:jeborg:v:68:y:2008:i:3-4:p:657-666
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  1. Miguel Fonseca & Wieland Müller & Hans-Theo Normann, 2006. "Endogenous timing in duopoly: experimental evidence," International Journal of Game Theory, Springer, vol. 34(3), pages 443-456, October.
  2. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "To commit or not to commit: Endogenous timing in experimental duopoly markets," SFB 373 Discussion Papers 1999,38, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  3. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  4. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  5. Müller, W., 2003. "Allowing for Two Production Periods in the Cournot Duopoly : Experimental Evidence," Discussion Paper 2003-42, Tilburg University, Center for Economic Research.
  6. van Damme, Eric & Hurkens, Sjaak, 1999. "Endogenous Stackelberg Leadership," Games and Economic Behavior, Elsevier, vol. 28(1), pages 105-129, July.
  7. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  8. Pal, Debashis, 1991. "Cournot duopoly with two production periods and cost differentials," Journal of Economic Theory, Elsevier, vol. 55(2), pages 441-448, December.
  9. Robson, Arthur J, 1990. "Duopoly with Endogenous Strategic Timing: Stackelberg Regained," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 263-74, May.
  10. Miguel Fonseca & Steffen Huck & Hans-Theo Normann, 2005. "Playing Cournot although they shouldn’t," Economic Theory, Springer, vol. 25(3), pages 669-677, 04.
  11. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
  13. Santos-Pinto, Luís, 2006. "Reciprocity, inequity-aversion, and oligopolistic competition," MPRA Paper 3143, University Library of Munich, Germany, revised 14 Apr 2007.
  14. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  15. David K Levine, 1997. "Modeling Altruism and Spitefulness in Experiments," Levine's Working Paper Archive 2047, David K. Levine.
  16. Ellingsen, Tore, 1994. "On Flexibility in Oligopoly," SSE/EFI Working Paper Series in Economics and Finance 21, Stockholm School of Economics.
  17. Giovanni Maggi, 1996. "Endogenous Leadership in a New Market," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 641-659, Winter.
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