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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 payoff function. Subjects see only the quantities and payoffs of each oligopolist after every period. In line with theoretical predictions and previous experimental findings, 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 profitable rival to other behavior that, intentionally or otherwise, facilitates collusion via effective 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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