Claudia Keser

Experimental Duopoly Markets with Demand Inertia

Game-Playing Experiments and the Strategy Method

• Broschiertes Buch

Produktbeschreibung

This experimental study examines both spontaneous and strategically planned behavior of boundedly rational sub- jects in a dynamic duopoly situation. Spontaneous behavior is observed in game-playing experiments where students from the University of Bonn have played the dynamic duopoly game by direct interaction via computer terminals. Strategically planned behavior isrevealed in strategies developed by forty-five academic economists from 12 countries. These strategies are played against each other in computer simulations. The most striking observation in both types of examination is the coexistence of cooperation and competition. Short-run monopoly pricing emerges as the prevailing mode of cooperation in the planned strategies. However, the most successful strategies turn out to be moderately competitive. An evolutionary tournament suggests a long-run coexistence of competition and cooperation.

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This report portrays the results of experimental research on dynamic duopoly markets with demand inertia. Two methods of experimentation are studied: game-playing experiments where subjects interact spontaneously via computer terminals, and computer tournaments between strategies designed by subjects. The principal aim of this study is the understanding of boundedly rational decision making in the dynamic duopoly situation. 1. 1 Motivation The experiments examine a multistage duopoly game where prices in each period are the only decision variables. Sales depend on current prices and also on past sales (demand inertia). Applying the game-theoretic concept of subgame perfect equilibrium, the game is solved by backward induction. The result is a uniquely determined system of decision rules. However, we can hardly expect that human beings behave according to the equilibrium strategy of this game. It is unlikely that subjects are able to compute the equilibrium. And even if a subject is able to compute it, he might not make use of this knowledge. Only if he expects the others to behave according to the equilibrium, it is optimal for him to play the equilibrium strategy. We have evidence from several earlier experimental studies on oligopoly markets that, even in less complex oligopoly situations where the equilibrium solutions are very easy to compute, human behavior often is different from what is prescribed by normative theory. ! Normative theory is based on the concept of ideal rationality. However, human capabilities impose cognitive limits on rationality.

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Produktdetails

• Lecture Notes in Economics and Mathematical Systems 391
• Verlag: Springer / Springer Berlin Heidelberg / Springer, Berlin
• Artikelnr. des Verlages: 978-3-540-56090-6
• 1992.
• Seitenzahl: 168
• Erscheinungstermin: 17. Dezember 1992
• Englisch
• Abmessung: 244mm x 170mm x 10mm
• Gewicht: 268g
• ISBN-13: 9783540560906
• ISBN-10: 3540560904
• Artikelnr.: 09208124

Inhaltsangabe

first tournament.- 5.3 Success of the strategies.- 5.4 An evolutionary tournament.- 6. Comparison of Game-Playing Experiments and Strategy Tournaments.- 7. Comparison With Related Studies.- 7.1 Selten (1967a,b).- 7.2 Axelrod (1984).- 7.3 Selten, Mitzkewitz and Uhlich (1988).- 7.4 Comparison of results.- 8. Summary.- References.- APPENDIX A: List of IDEAS participants.- APPENDIX B: Examples of actually observed markets in the game-playing experiments.- APPENDIX C: Flow charts of the strategies surviving in the evolutionary tournament.

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1. Introduction.- 1.1 Motivation.- 1.2 The experimental methods.- 1.3 Structure of the book.- 2. The Model.- 2.1 The game.- 2.2 The subgame perfect equilibrium solution.- 2.3 Pareto optimality.- 2.4 A prominent cooperative solution.- 3. The Experimental Design.- 3.1 Organization of the game-playing experiments.- 3.2 Organization of the strategy tournaments.- 4. Results of the Game-Playing Experiments.- 4.1 General results.- 4.2 Analysis of the individual markets of the second plays.- 5. Results of the Strategy Tournaments.- 5.1 General results.- 5.2 Structure of the strategies.- 5.3 Success of the strategies.- 5.4 An evolutionary tournament.- 6. Comparison of Game-Playing Experiments and Strategy Tournaments.- 7. Comparison With Related Studies.- 7.1 Selten (1967a,b).- 7.2 Axelrod (1984).- 7.3 Selten, Mitzkewitz and Uhlich (1988).- 7.4 Comparison of results.- 8. Summary.- References.- APPENDIX A: List of IDEAS participants.- APPENDIX B: Examples of actually observed markets in the game-playing experiments.- APPENDIX C: Flow charts of the strategies surviving in the evolutionary tournament.