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Ambiguous Information and Market Entry: An Experimental Study

  • Brandts, Jordi
  • Yao, Lan

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25276.

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Date of creation: 14 Aug 2010
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Handle: RePEc:pra:mprapa:25276
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  1. Michalis Drouvelis & Wieland Muller & Alex Possajennikov, 2009. "Signaling Without Common Prior: An Experiment," Discussion Papers 09/08, Department of Economics, University of York.
  2. repec:cup:cbooks:9780521633574 is not listed on IDEAS
  3. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "Firm Entry and Post-Entry Performance in the U.S. Chemical Industries," Working Papers 89-6, Center for Economic Studies, U.S. Census Bureau.
  4. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  5. 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.
  6. 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.
  7. Einhorn, Hillel J & Hogarth, Robin M, 1986. "Decision Making under Ambiguity," The Journal of Business, University of Chicago Press, vol. 59(4), pages S225-50, October.
  8. Fox, Craig R & Tversky, Amos, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 585-603, August.
  9. Julian Jamison & Dean S. Karlan, 2005. "When Curiosity Kills the Profits: an Experimental Examination," Experimental 0505001, EconWPA.
  10. John Duffy & Ed Hopkins, 2004. "Learning, Information and Sorting in Market Entry Games: Theory and Evidence," ESE Discussion Papers 78, Edinburgh School of Economics, University of Edinburgh.
  11. 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, 01.
  12. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
  13. 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.
  14. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  15. Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
  16. repec:cup:cbooks:9780521465618 is not listed on IDEAS
  17. Chow, Clare Chua & Sarin, Rakesh K, 2001. " Comparative Ignorance and the Ellsberg Paradox," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 129-39, March.
  18. 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.
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