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Experimentally Observed Imitation and Cooperation in Price Competition on the Circle

  • Reinhard Selten
  • Jose Apesteguia

This paper reports an experiment on a location game, the so-called "Price-Competition on the Circle." There are n symmetric firms equidistantly located on a circle. Consumers are uniformly distributed. Each consumer buys one and only one unit from that firm whose price, including the cost of transportation, is the lowest, provided such a price is below a maximum willingness to pay. Experiments, extended over 200 periods, were run with 3, 4, and 5 participants. Subjects did not receive any information about the relationship between prices and profits, but they received feedback on prices and profits of two neighbors after each period. The evaluation compares predictions derived from imitation equilibrium (Selten and Ostmann 2001) and Cournot equilibrium, as well as symmetric joint-profit maximization. The results qualitatively favor imitation equilibrium, as long as no cooperation is observed.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse19_2002.

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Length: 28
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:bon:bonedp:bgse19_2002
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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  1. Dufwenberg, Martin & Gneezy, Uri, 1998. "Price Competition and Market Concentration: An Experimental Study," Working Paper Series 1998:8, Uppsala University, Department of Economics.
  2. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Learning in Cournot Oligopoly - An Experiment," Game Theory and Information 9707009, EconWPA, revised 22 Jul 1997.
  3. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  4. Apesteguia, Jose & Huck, Steffen & Oechssler, Jorg, 2007. "Imitation--theory and experimental evidence," Journal of Economic Theory, Elsevier, vol. 136(1), pages 217-235, September.
  5. Offerman, T.J.S. & Potters, J.J.M. & Sonnemans, J., 2002. "Imitation and belief learning in an oligopoly experiment," Other publications TiSEM a6a771c5-31ba-4193-8f76-a, Tilburg University, School of Economics and Management.
  6. Rhode, Paul & Stegeman, Mark, 2001. "Non-Nash equilibria of Darwinian dynamics with applications to duopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 415-453, March.
  7. Schlag, Karl H., 1998. "Why Imitate, and If So, How?, : A Boundedly Rational Approach to Multi-armed Bandits," Journal of Economic Theory, Elsevier, vol. 78(1), pages 130-156, January.
  8. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
  9. repec:ner:tilbur:urn:nbn:nl:ui:12-91663 is not listed on IDEAS
  10. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
  11. Antoni Bosch-DomËnech & Nicolaas J. Vriend, 2003. "Imitation of successful behaviour in cournot markets," Economic Journal, Royal Economic Society, vol. 113(487), pages 495-524, 04.
  12. Klaus Abbink & Jordi Brandts, 2005. "Price Competition Under Cost Uncertainty: A Laboratory Analysis," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 636-648, July.
  13. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1998. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," Industrial Organization 9803004, EconWPA.
  14. Schlag, Karl H., 1996. "Which one should I imitate?," Discussion Paper Serie B 365, University of Bonn, Germany.
  15. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
  16. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  17. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  18. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 2004. "Through Trial and Error to Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 205-224, 02.
  19. Eshel, Ilan & Samuelson, Larry & Shaked, Avner, 1998. "Altruists, Egoists, and Hooligans in a Local Interaction Model," American Economic Review, American Economic Association, vol. 88(1), pages 157-79, March.
  20. Fernando Vega-Redondo, 1999. "Markets under bounded rationality: from theory to facts," Investigaciones Economicas, Fundación SEPI, vol. 23(1), pages 3-26, January.
  21. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August.
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