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From Imitation to Collusion: Long-run Learning in a Low-Information Environment

  • Daniel Friedman
  • Steffen Huck
  • Ryan Oprea
  • Simon Weidenholzer

We study long-run learning in an experimental Cournot game with no explicit information about the payo function. Subjects see only the quantities and payos of each oligopolist after every period. In line with theoretical predictions and previous experimental ndings, duopolies and triopolies both reach highly competitive levels, with price approaching marginal cost within 50 periods. Using the new ConG software, we extend the horizon to 1,200 periods, far beyond that previously investigated. Already after 100 periods we observe a qualitative change in behavior, and quantity choices start to drop. Without pausing at the Cournot-Nash level quantities continue to drop, eventually reaching almost fully collusive levels in duopolies and often reaching deep into collusive territory for triopolies. Fitted models of individual adjustment suggest that subjects switch from imitation of the most protable rival to other behavior that, intentionally or otherwise, facilitates collusion via eective punishment and forgiveness. Remarkably, subjects never learn the best-reply correspondence of the one-shot game. Our results suggest a new explanation for the emergence of cooperation.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000457.

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Date of creation: 22 Jul 2012
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Handle: RePEc:cla:levarc:786969000000000457
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Jose Apesteguia & Steffen Huck & Jörg Oechssler & Simon Weidenholzer, 2008. "Imitation and the Evolution of Walrasian Behavior: Theoretically Fragile but Behaviorally Robust," CESifo Working Paper Series 2224, CESifo Group Munich.
  2. Karl H. Schlag, 1995. "Why Imitate, and if so, How? A Bounded Rational Approach to Multi-Armed Bandits," Discussion Paper Serie B 361, University of Bonn, Germany, revised Mar 1996.
  3. J. Robinson, 1969. "An Iterative Method of Solving a Game," Levine's Working Paper Archive 422, David K. Levine.
  4. Milgrom, Paul & Roberts, John, 1991. "Adaptive and sophisticated learning in normal form games," Games and Economic Behavior, Elsevier, vol. 3(1), pages 82-100, February.
  5. Apesteguia, Jose & Huck, Steffen & Oechssler, Joerg, 2003. "Imitation - Theory and Experimental Evidence," University of California at Santa Barbara, Economics Working Paper Series qt3h0887tj, Department of Economics, UC Santa Barbara.
  6. Theo Offerman & Jan Potters & Joep Sonnemans, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 973-997.
  7. Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. 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.
  9. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  10. repec:ner:tilbur:urn:nbn:nl:ui:12-91663 is not listed on IDEAS
  11. Schlag, Karl H., 1994. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Discussion Paper Serie B 296, University of Bonn, Germany.
  12. Carlos Alós-Ferrer & Ana Ania, 2005. "The evolutionary stability of perfectly competitive behavior," Economic Theory, Springer, vol. 26(3), pages 497-516, October.
  13. Paul Milgrom & John Roberts, 2010. "Adaptive and Sophisticated Learning in Repeated Normal-Form Games," Levine's Working Paper Archive 418, David K. Levine.
  14. Ben Greiner, 2004. "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working Paper Series in Economics 10, University of Cologne, Department of Economics.
  15. Beggs, A.W., 2005. "On the convergence of reinforcement learning," Journal of Economic Theory, Elsevier, vol. 122(1), pages 1-36, May.
  16. Alger, Dan, 1987. "Laboratory Tests of Equilibrium Predictions with Disequilibrium Data," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 105-45, January.
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