Does Opponents’ Experience Matter? Experimental Evidence from a Quantity Precommitment Game

37 Pages Posted: 10 Nov 2011

See all articles by Chloe Le Coq

Chloe Le Coq

SITE-Stockholm School of Economics

Jon Thor Sturluson

Reykjavik University

Date Written: November 10, 2011

Abstract

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.

Keywords: Experience, Experiment, Oligopoly, Quantity precommitment, Rationality

JEL Classification: C92, L11, L13

Suggested Citation

Le Coq, Chloe and Sturluson, Jon Thor, Does Opponents’ Experience Matter? Experimental Evidence from a Quantity Precommitment Game (November 10, 2011). Available at SSRN: https://ssrn.com/abstract=1957581 or http://dx.doi.org/10.2139/ssrn.1957581

Chloe Le Coq (Contact Author)

SITE-Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

HOME PAGE: http://www.hhs.se/SITE/Staff/Pages/ChloeLeCoq.aspxl

Jon Thor Sturluson

Reykjavik University ( email )

Menntavegur 1
Reykjavik, 101
Iceland

HOME PAGE: http://www.ru.is/jonthor

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