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Information and Learning in Oligopoly: an Experiment

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  • Maria Bigoni

    (University of Padova)

Abstract

I report results of an experiment designed to study the relation between the process of information search and learning in a Cournot oligopoly, with limited a priori information. Different theories of learning have been applied to this setting, each yielding a specific market outcome in the long run, and postulating specific informational requirements. By allowing players to choose the information they wish to acquire, and controlling for these choices, I study the features of the learning model actually followed by the subjects, and the relation between the information they gather and the market behavior they adopt. According to my results, learning appears to be a composite process, in which different components coexist. Belief learning seems to be the leading element, as subjects try to form expectations about their opponents' future actions and to best reply to them. When subjects also look at the strategies individually adopted by their competitors, though, they tend to imitate the most successful behavior, which makes markets more competitive. Finally, reinforcement learning also plays a nonnegligible role, as subjects tend to favor strategies that have yielded higher profits in the past. I show that these different elements may be usefully incorporated into a more sophisticated learning model, shaped after self tuning EWA learning model.

Suggested Citation

  • Maria Bigoni, 2008. "Information and Learning in Oligopoly: an Experiment," "Marco Fanno" Working Papers 0072, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0072
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    Cited by:

    1. Buckert, Magdalena & Oechssler, Jörg & Schwieren, Christiane, 2017. "Imitation under stress," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 252-266.
    2. Jörg Oechssler & Alex Roomets & Stefan Roth, 2016. "From imitation to collusion: a replication," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 2(1), pages 13-21, May.
    3. Francesco Fallucchi & Jan Niederreiter & Massimo Riccaboni, 2021. "Learning and dropout in contests: an experimental approach," Theory and Decision, Springer, vol. 90(2), pages 245-278, March.
    4. Bigoni, Maria, 2010. "What do you want to know? Information acquisition and learning in experimental Cournot games," Research in Economics, Elsevier, vol. 64(1), pages 1-17, March.
    5. Masiliūnas, Aidas & Nax, Heinrich H., 2020. "Framing and repeated competition," Games and Economic Behavior, Elsevier, vol. 124(C), pages 604-619.
    6. Bayona, Anna & Brandts, Jordi & Vives, Xavier, 2020. "Information frictions and market power: A laboratory study," Games and Economic Behavior, Elsevier, vol. 122(C), pages 354-369.
    7. Tsakas, Nikolas, 2017. "Diffusion by imitation: The importance of targeting agents," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 118-151.
    8. Cerboni Baiardi, Lorenzo & Naimzada, Ahmad K., 2018. "An oligopoly model with best response and imitation rules," Applied Mathematics and Computation, Elsevier, vol. 336(C), pages 193-205.
    9. Bigoni, Maria & Fort, Margherita, 2013. "Information and learning in oligopoly: An experiment," Games and Economic Behavior, Elsevier, vol. 81(C), pages 192-214.
    10. Lorenzo Cerboni Baiardi & Ahmad K. Naimzada, 2018. "An evolutionary model with best response and imitative rules," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 313-333, November.
    11. Lorenzo Cerboni Baiardi & Ahmad K. Naimzada, 2019. "An evolutionary Cournot oligopoly model with imitators and perfect foresight best responders," Metroeconomica, Wiley Blackwell, vol. 70(3), pages 458-475, July.
    12. Cerboni Baiardi, Lorenzo & Naimzada, Ahmad K., 2019. "An oligopoly model with rational and imitation rules," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 156(C), pages 254-278.
    13. Vives, Xavier & Bayona, Anna & Brandts, Jordi, 2016. "Supply Function Competition, Private Information, and Market Power: A Laboratory Study," IESE Research Papers D/1146, IESE Business School.
    14. Nobuyuki Hanaki & Aidas Masiliunas, 2021. "Market Concentration and Incentives to Collude in Cournot Oligopoly Experiments," ISER Discussion Paper 1131, Institute of Social and Economic Research, Osaka University.
    15. Oechssler, Jörg & Roomets, Alex & Roth, Stefan, 2015. "From Imitation to Collusion - A Comment," Working Papers 0588, University of Heidelberg, Department of Economics.
    16. Mario Biggeri & Domenico Colucci & Nicola Doni & Vincenzo Valori, 2022. "Sustainable Entrepreneurship: Good Deeds, Business, Social and Environmental Responsibility in a Market Experiment," Sustainability, MDPI, vol. 14(6), pages 1-20, March.
    17. Segismundo S. Izquierdo & Luis R. Izquierdo, 2015. "The “Win-Continue, Lose-Reverse” Rule In Oligopolies: Robustness Of Collusive Outcomes," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 18(05n06), pages 1-23, August.
    18. Armstrong, Mark & Huck, Steffen, 2010. "Behavioral economics as applied to firms: a primer," MPRA Paper 20356, University Library of Munich, Germany.

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    More about this item

    Keywords

    Information; Learning; Imitation; Collusion;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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