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To commit or not to commit: Endogenous timing in experimental duopoly markets

  • Huck, Steffen
  • Müller, Wieland
  • Normann, Hans-Theo

In this paper, we experimentally investigate the extended game with action commitment of Hamilton and Slutsky (1990). In their duopoly game, firms can choose their quantities in one of two periods before the market clears. If a firm commits to a quantity in period 1 it does not know whether the other firm also commits early. By waiting until period 2, a firm can observe the other firm's period 1 action. Hamilton and Slutsky predict the emergence of endogenous Stackelberg leadership. Our data, however, does not confirm the theory. While Stackelberg equilibria are extremely rare we often observe endogenous Cournot outcomes and sometimes collusive play. This is partly driven by the fact that endogenous Stackelberg followers learn to behave in a reciprocal fashion over time, i.e., they learn to reward cooperation and to punish exploitation.

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1999,38.

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Date of creation: 1999
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Handle: RePEc:zbw:sfb373:199938
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  1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  2. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  3. Matsumura, Toshihiro, 1999. "Quantity-setting oligopoly with endogenous sequencing," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 289-296, February.
  4. Holt, Charles A, 1985. "An Experimental Test of the Consistent-Conjectures Hypothesis," American Economic Review, American Economic Association, vol. 75(3), pages 314-25, June.
  5. van Damme, E.E.C. & Hurkens, S., 1998. "Endogenous Stackelberg leadership," Other publications TiSEM fc1a6ca3-d618-4bc5-a115-f, School of Economics and Management.
  6. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  7. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
  8. Hans-Theo Normann, 1997. "Endogenous Stackelberg equilibria with incomplete information," Journal of Economics, Springer, vol. 66(2), pages 177-187, June.
  9. repec:ner:tilbur:urn:nbn:nl:ui:12-154410 is not listed on IDEAS
  10. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
  11. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
  12. Ellingsen, Tore, 1995. "On flexibility in oligopoly," Economics Letters, Elsevier, vol. 48(1), pages 83-89, April.
  13. Steffen Huck & Wieland Mueller, 1998. "Perfect versus imperfect observability---An experimental test of Bagwell's result," Experimental 9804001, EconWPA.
  14. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
  15. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  16. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, vol. 65(3), pages 517-556, May.
  17. Simon, Leo K & Stinchcombe, Maxwell B, 1995. "Equilibrium Refinement for Infinite Normal-Form Games," Econometrica, Econometric Society, vol. 63(6), pages 1421-43, November.
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