Tacit Coordination in a Decentralized Market Entry Game with Fixed Capacity

Posted: 9 Sep 2002

See all articles by Rami Zwick

Rami Zwick

University of California, Riverside

Amnon Rapoport

University of Arizona - Eller College of Management

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Abstract

We focus on a class of market entry in which a newly emergent market opportunity may be fruitfully exploited by no more than a commonly known, exogenously determined number of firms. Our results show significant effects of the parameters manipulated in the study, namely, the market capacity, entry fee, and method of subject assignment to groups (fixed vs. random). In contrast to previous market entry games with linear payoff functions, we find no evidence of convergence to equilibrium play on the aggregate level. Shifting the focus of the analysis from the aggregate to the individual level, four clusters of subjects are identified. The patterns are: (1) choice of the same action that is independent of the parameters of the game or the outcome of previous presentations of the same game; (2) random choices with probabilities prescribed by the equilibrium solution for risk-neutral players; (3) random choices with probabilities equal to the individual observed overall proportion of entry; and (4) sequential dependencies that violate any model that assumes randomization. Subjects in the fourth and largest category are shown to adjust their choices in accordance with a simple principle of strategic reasoning.

Keywords: Tacit Coordination, market entry game, individual behavior

JEL Classification: C91, C92, H32, L1

Suggested Citation

Zwick, Rami and Rapoport, Amnon, Tacit Coordination in a Decentralized Market Entry Game with Fixed Capacity. Available at SSRN: https://ssrn.com/abstract=319760

Rami Zwick (Contact Author)

University of California, Riverside ( email )

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Riverside, CA 92521
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Amnon Rapoport

University of Arizona - Eller College of Management ( email )

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