Excess Entry in an Experimental Winner-Take-All Market

Zurich IEER Working Paper No. 86

31 Pages Posted: 7 Sep 2001

See all articles by Urs Fischbacher

Urs Fischbacher

University of Konstanz - Faculty of Economics and Statistics

Christian Thöni

University of Lausanne

Date Written: January 2002

Abstract

"Winner-Take-All"-markets, i.e. markets in which the relative and not the absolute performance is decisive, have gained in importance. Such markets have a tendency to provoke inefficiently many entries. We investigate the functioning of such markets with the help of experiments and show that there are even more inefficient entries than predicted by the Nash equilibrium. Moreover, this effect increases with group size. Quantal response equilibrium predicts the increase in group size but fails to predict the excess entry in the smaller group. We show that the excess entry is not caused by coordination failures. Furthermore, individual entry behavior is not significantly linked to risk preferences. We discuss several concepts that might explain the observed excess entry.

Note: Previously Titled: Inefficient Excess Entry in an Experimental Winner-Take-All Market

Keywords: Winner-take-all market, Excess entry, Experiment, Market entry

JEL Classification: C92, D81

Suggested Citation

Fischbacher, Urs and Thöni, Christian, Excess Entry in an Experimental Winner-Take-All Market (January 2002). Zurich IEER Working Paper No. 86. Available at SSRN: https://ssrn.com/abstract=282729 or http://dx.doi.org/10.2139/ssrn.282729

Urs Fischbacher (Contact Author)

University of Konstanz - Faculty of Economics and Statistics ( email )

Universitaetsstr. 10
78457 Konstanz
Germany

Christian Thöni

University of Lausanne ( email )

Lausanne, Vaud CH-1015
Switzerland

HOME PAGE: http://https://sites.google.com/site/christianthoeni/

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