Small is Successful!?

Mathias Erlei and Jens-Peter Springmann
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Jens-Peter Springmann: Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal), https://www.wiwi.tu-clausthal.de/abteilungen/volkswirtschaftslehre/

TUC Working Papers in Economics from Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal)

Abstract: This paper provides experimental evidence on exit behavior of asymmetrically sized firms in a duopoly with declining demand. We conduct three treatments: (a) The basic model with indivisible real capital. The structure of this treatment represents the main findings of Ghemawat and Nalebuff (1985); (b) an extension of the basic model by introducing a bankruptcy constraint; (c) here we allow for divisible real capital (Ghemawat and Nalebuff (1990)). In all three treatments we find behavior that is, by and large, in line with subgame perfect Nash Equilibrium. However, there is a problem of multiplicity of equilibria in (b) and we find an anchor effect as well as learning effects in (c).

Keywords: Exit; duopoly; declining market; experimental economics (search for similar items in EconPapers)
JEL-codes: C92 D43 L11 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2006
New Economics Papers: this item is included in nep-com and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:tuc:tucewp:0005

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