Do Opponents' Experience Matter? Experimental Evidence from a Quantity Precommitment Game
This paper investigates why subjects in laboratory experiments on quantity precommitment games consistently choose capacities above the Cournot level - the subgame-perfect equilibrium. We argue that this puzzling regularity may be attributed to players' perceptions of their opponents' skill or level of rationality. In our experimental design, we use the level of experience (the number of periods played) as a proxy for the level of rationality and match subjects with different levels of experience. We first find evidence of capacity choices decreasing, and prices increasing, with the opponent's experience. Futhermore, we investigate the observed behavioural patterns by using the agent-form quantal response equilibrium model by McKelvey and Palfrey (1998). In particular, this framework takes into account any interaction between a player's own experience and that of his opponent. We show how the predictions of this theoretical framework fit well with the experimental data.
|Date of creation:||28 May 2003|
|Date of revision:||10 Nov 2011|
|Contact details of provider:|| Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden|
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- Vital Anderhub & Werner Güth & Ulrich Kamecke & Hans-Theo Normann, 2003.
"Capacity Choices and Price Competition in Experimental Markets,"
Springer;Economic Science Association, vol. 6(1), pages 27-52, June.
- Anderhub, V. & Guth, W. & Kamecke, U. & Normann, H.T., 2001. "Capacity Cjoices and Price Competition in Experimental Market," Papers 179, Flinders of South Australia - Discipline of Economics.
- Anderhub, Vital & Güth, Werner & Kamecke, Ulrich & Normann, Hans-Theo, 2001. "Capacity choices and price competition in experimental markets," SFB 373 Discussion Papers 2001,10, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1998. "Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 828-853, August.
- Mark Armstrong & Steffen Huck, 2011. "Behavioral Economics as Applied to Firms: A Primer," Antitrust Chronicle, Competition Policy International, vol. 1.
- Mark Armstrong & Steffen Huck, 2010. "Behavioral Economics as Applied to Firms: A Primer," CPI Journal, Competition Policy International, vol. 6.
- Armstrong, Mark & Huck, Steffen, 2010. "Behavioral economics as applied to firms: a primer," MPRA Paper 20356, University Library of Munich, Germany.
- Mark Armstrong & Steffen Huck, 2010. "Behavioral Economics as Applied to Firms: A Primer," CESifo Working Paper Series 2937, CESifo Group Munich.
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