IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/25276.html
   My bibliography  Save this paper

Ambiguous Information and Market Entry: An Experimental Study

Author

Listed:
  • Brandts, Jordi
  • Yao, Lan

Abstract

We study experimentally how entry into a market with uncertain capacity is affected by the type of information potential entrants have available. Our focus is on behavior in a two-market entry game. In the risky information market there are two possible market capacities, both known to occur with probability 1/2. In the ambiguous information market the two possible market capacities effectively occur with probability 1/2 but participants are only told that there is uncertainty about capacities. We find that average entry is higher under ambiguous information than under risky information. To control for comparison effects and the effects of strategic interaction in the two market environment we also study a two-lottery individual decision problem and one market entry games with ambiguous and risky information. For these two cases the experimental results show no difference between information conditions. Our results are consistent with the notion that complex strategic interaction leads to higher market entry under ambiguous information.

Suggested Citation

  • Brandts, Jordi & Yao, Lan, 2010. "Ambiguous Information and Market Entry: An Experimental Study," MPRA Paper 25276, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25276
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/25276/1/MPRA_paper_25276.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Firm Entry and Postentry Performance in the U.S. Chemical Industries," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 233-271, October.
    2. Drouvelis, M. & Müller, W. & Possajennikov, A., 2009. "Signaling Without Common Prior : An Experiment," Discussion Paper 2009-28, Tilburg University, Center for Economic Research.
    3. Jamison, Julian & Karlan, Dean S., 2009. "When curiosity kills the profits: An experimental examination," Games and Economic Behavior, Elsevier, vol. 66(2), pages 830-840, July.
    4. Craig R. Fox & Amos Tversky, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 585-603.
    5. Duffy, John & Hopkins, Ed, 2005. "Learning, information, and sorting in market entry games: theory and evidence," Games and Economic Behavior, Elsevier, vol. 51(1), pages 31-62, April.
    6. 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.
    7. Chow, Clare Chua & Sarin, Rakesh K, 2001. "Comparative Ignorance and the Ellsberg Paradox," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 129-139, March.
    8. Camerer, Colin & Weber, Martin, 1992. "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-370, October.
    9. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    10. Martin G. Kocher & Stefan T. Trautmann, 2013. "Selection Into Auctions For Risky And Ambiguous Prospects," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 882-895, January.
    11. Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1998. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521633574, April.
      • Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618.
    12. Erev, Ido & Rapoport, Amnon, 1998. "Coordination, "Magic," and Reinforcement Learning in a Market Entry Game," Games and Economic Behavior, Elsevier, vol. 23(2), pages 146-175, May.
    13. Chen, Yan & Katuscak, Peter & Ozdenoren, Emre, 2007. "Sealed bid auctions with ambiguity: Theory and experiments," Journal of Economic Theory, Elsevier, vol. 136(1), pages 513-535, September.
    14. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
    15. Einhorn, Hillel J & Hogarth, Robin M, 1986. "Decision Making under Ambiguity," The Journal of Business, University of Chicago Press, vol. 59(4), pages 225-250, October.
    16. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 861-898.
    17. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Foster, Joshua & Deck, Cary & Farmer, Amy, 2019. "Behavioral demand effects when buyers anticipate inventory shortages," European Journal of Operational Research, Elsevier, vol. 276(1), pages 217-234.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Füllbrunn, Sascha & Rau, Holger A. & Weitzel, Utz, 2014. "Does ambiguity aversion survive in experimental asset markets?," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 810-826.
    2. Lindner, Florian, 2014. "Decision time and steps of reasoning in a competitive market entry game," Economics Letters, Elsevier, vol. 122(1), pages 7-11.
    3. Ivanov, Asen, 2011. "Attitudes to ambiguity in one-shot normal-form games: An experimental study," Games and Economic Behavior, Elsevier, vol. 71(2), pages 366-394, March.
    4. Martin G. Kocher & Stefan T. Trautmann, 2013. "Selection Into Auctions For Risky And Ambiguous Prospects," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 882-895, January.
    5. Matthias Gysler & Jamie Kruse & Renate Schubert, 2002. "Ambiguity and Gender Differences in Financial Decision Making: An Experimental Examination of Competence and Confidence Effects," CER-ETH Economics working paper series 02/23, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    6. Ge Bai & Ranjani Krishnan, 2016. "Effects of Ambiguous Common Uncertainty on Employee Preference for Relative Performance Contracts," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 6, pages 65-93, December.
    7. Mercè Roca & Robin Hogarth & A. Maule, 2006. "Ambiguity seeking as a result of the status quo bias," Journal of Risk and Uncertainty, Springer, vol. 32(3), pages 175-194, May.
    8. Laurent Denant-Boemont & Sabrina Hammiche, 2009. "Public Transit Capacity and Users Choice: AnExperiment on Downs-Thomson Paradox," Working Papers halshs-00405501, HAL.
    9. Jean Desrochers & J. Francois Outreville, 2013. "Uncertainty, Ambiguity and Risk Taking: an experimental investigation of consumer behavior and demand for insurance," ICER Working Papers 10-2013, ICER - International Centre for Economic Research.
    10. Paul Dolan & Martin Jones, 2004. "Explaining Attitudes Towards Ambiguity: An Experimental Test Of The Comparative Ignorance Hypothesis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(3), pages 281-301, August.
    11. Farjam, Mike, 2019. "On whom would I want to depend; humans or computers?," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 219-228.
    12. Artinger, Sabrina, 2013. "Demand uncertainty in skill-based competition," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79962, Verein für Socialpolitik / German Economic Association.
    13. L. Robin Keller & Rakesh K. Sarin & Jayavel Sounderpandian, 2007. "An examination of ambiguity aversion: Are two heads better than one?," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 390-397, December.
    14. Collins, Sean M. & James, Duncan & Servátka, Maroš & Woods, Daniel, 2017. "Price-setting and attainment of equilibrium: Posted offers versus an administered price," Games and Economic Behavior, Elsevier, vol. 106(C), pages 277-293.
    15. Christoph Huber & Julia Rose, 2019. "Do individual attitudes towards imprecision survive in experimental asset markets?," Working Papers 2019-06, Faculty of Economics and Statistics, University of Innsbruck.
    16. José Lara Resende & George Wu, 2010. "Competence effects for choices involving gains and losses," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 109-132, April.
    17. Koch, Christopher & Schunk, Daniel, 2007. "The Case for Limited Auditor Liability - The Effects of Liability Size on Risk Aversion and Ambiguity Aversion," Sonderforschungsbereich 504 Publications 07-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    18. Kirman, Alan P. & Laisney, François & Pezanis-Christou, Paul, 2018. "Exploration vs exploitation, impulse balance equilibrium, and a specification test for the El Farol bar problem," ZEW Discussion Papers 18-038, ZEW - Leibniz Centre for European Economic Research.
    19. Laurent Denant-Boemont & Sabrina Hammiche, 2009. "Public Transit Capacity and Users Choice: AnExperiment on Downs-Thomson Paradox," Working Papers halshs-00405501, HAL.
    20. Madiès, Thierry & Villeval, Marie Claire & Wasmer, Malgorzata, 2013. "Intergenerational attitudes towards strategic uncertainty and competition: A field experiment in a Swiss bank," European Economic Review, Elsevier, vol. 61(C), pages 153-168.

    More about this item

    Keywords

    Market entry games; Experiment; Risk; Ambiguity.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:25276. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.