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Tacit Coordination in a Decentralized Market Entry Game with Fixed Capacity

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  • Rami Zwick

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  • Amnon Rapoport

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Abstract

We focus on a class of market entry games in which a newly emergent market opportunity may be fruitfully exploited by no more than a commonly known, exogenously determined number of firms. Our results show significant effects of the parameters manipulated in the study, namely, the market capacity, entry fee, and method of subject assignment to groups (fixed vs. random). In contrast to previous market entry games with linear payoff functions, we find no evidence of convergence to equilibrium play on the aggregate level. Shifting the focus of the analysis from the aggregate to the individual level, four clusters of subjects are identified. The patterns are: (1) choice of the same action that is independent of the parameters of the game or the outcome of previous presentations of the same game; (2) random choices with probabilities prescribed by the equilibrium solution for risk-neutral players; (3) random choices with probabilities equal to the individual observed overall proportion of entry; and (4) sequential dependencies that violate any model that assumes randomization. Subjects in the fourth and largest category are shown to adjust their choices in accordance with a simple principle of strategic reasoning. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Rami Zwick & Amnon Rapoport, 2002. "Tacit Coordination in a Decentralized Market Entry Game with Fixed Capacity," Experimental Economics, Springer;Economic Science Association, vol. 5(3), pages 253-272, December.
  • Handle: RePEc:kap:expeco:v:5:y:2002:i:3:p:253-272
    DOI: 10.1023/A:1020892405622
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Giovanna Devetag & Francesca Pancotto & Thomas Brenner, 2011. "The Minority Game Unpacked: Coordination and Competition in a Team-based Experiment," LEM Papers Series 2011/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Kets, W., 2007. "The Minority Game : An Economics Perspective," Discussion Paper 2007-53, Tilburg University, Center for Economic Research.
    3. Giulio Bottazzi & Giovanna Devetag, 2002. "Coordination and self-organization in minority games: experimental evidence," CEEL Working Papers 0215, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    4. Messinger, Paul R., 2016. "The role of fairness in competitive supply chain relationships: An experimental studyAuthor-Name: Choi, Sungchul," European Journal of Operational Research, Elsevier, vol. 251(3), pages 798-813.
    5. Pietro Dindo & Jan Tuinstra, 2006. "A Behavioral Model for Participation Games with Negative Feedback," Tinbergen Institute Discussion Papers 06-073/1, Tinbergen Institute.
    6. Rami Zwick & Amnon Rapoport & Alison King Chung Lo, 2001. "Behavioral Strategies in Repeated Pure Coordination Games," Experimental 0110004, EconWPA.
    7. Daniel Cracau & Abdolkarim Sadrieh, 2014. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels," FEMM Working Papers 140003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

    More about this item

    Keywords

    coordination; market entry game; experiment; Nash equilibrium;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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