Does Opponents’ Experience Matter? Experimental Evidence from a Quantity Precommitment Game
Chloe Le Coq
SITE-Stockholm School of Economics
Jon Thor Sturluson
November 10, 2011
This paper investigates why subjects in laboratory experiments on quantity precommitment games consistently choose capacities above the Cournot level - the subgame-perfect equilibrium. We argue that this puzzling regularity may be attributed to players’ perceptions of their opponents’ skill or level of rationality. We first show theoretically that it is the case by modelling a two-stage game of capacity investment and pricing with bounded rational players. We then design an experiment in which we use the level of experience as a proxy for the level of rationality and match subjects with different levels of experience. We find significant differences in behavior depending on opponents’ experience; moreover, players facing inexperienced players tend to choose higher capacities than they would otherwise.
Number of Pages in PDF File: 37
Keywords: Experience, Experiment, Oligopoly, Quantity precommitment, Rationality
JEL Classification: C92, L11, L13working papers series
Date posted: November 10, 2011
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