Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets

Abstract:     
The prediction of asymmetric equilibria with Stackelberg outcomes is clearly the most frequent result in the endogenous timing literature. Several experiments have tried to validate this prediction empirically, but failed to find support for it. By contrast, the experiments find that simultaneous-move outcomes are modal and that behavior in endogenous timing games is quite heterogeneous. This paper generalizes Saloner's (1987) and Hamilton and Slutsky's (1990) endogenous timing games by assuming that players are averse to inequality in payoffs. We explore the theoretical implications of inequity aversion and compare them to the empirical evidence. We find that this explanation is able to organize most of the experimental evidence on endogenous timing games. However, inequity aversion is not able to explain delay in Hamilton and Slutsky's endogenous timing games.

Number of Pages in PDF File: 30

Keywords: Endogenous Timing, Cournot, Stackelberg, Inequity Aversion

JEL Classification: C72, D43, D63, L13

working papers series