Small is Successful!?
This paper provides experimental evidence on exit behavior of asymmetrically sized firms in a duopoly with declining demand. We conduct three treatments: (a) The basic model with indivisible real capital. The structure of this treatment represents the main findings of Ghemawat and Nalebuff (1985); (b) an extension of the basic model by introducing a bankruptcy constraint; (c) here we allow for divisible real capital (Ghemawat and Nalebuff (1990)). In all three treatments we find behavior that is, by and large, in line with subgame perfect Nash Equilibrium. However, there is a problem of multiplicity of equilibria in (b) and we find an anchor effect as well as learning effects in (c).
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- Ernst Fehr & Klaus M. Schmidt, .
"A Theory of Fairness, Competition and Cooperation,"
IEW - Working Papers
004, Institute for Empirical Research in Economics - University of Zurich.
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- Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
- Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
- Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
- Darren Filson & Bunchon Songsamphant, .
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Claremont Colleges Working Papers
2001-13, Claremont Colleges.
- Darren Filson & Bunchon Songsamphant, 2005. "Horizontal mergers and exit in declining industries," Applied Economics Letters, Taylor & Francis Journals, vol. 12(2), pages 129-132.
- Troske, Kenneth R, 1996. "The Dynamic Adjustment Process of Firm Entry and Exit in Manufacturing and Finance, Insurance, and Real Estate," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 705-35, October.
- Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine.
- Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-60, July.
- Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, vol. 99(398), pages 949-61, December.
- Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February.
- Francisco Ruiz-Aliseda, 2003. "Strategic Commitment Versus Flexibility in a Duopoly with Entry and Exit," Discussion Papers 1379, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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