Stackelberg in the lab: The effect of group decision making and “Cooling-off” periods

Eric Cardella and Ray Chiu

Journal of Economic Psychology, 2012, vol. 33, issue 6, 1070-1083

Abstract: The Stackelberg duopoly is a fundamental model of sequential output competition. The equilibrium outcome of the model results in a first-mover advantage where the first-moving firm produces more output, and earns larger profits, relative to the second-moving firm. Huck, Müller, and Normann (2001) and Huck and Wallace (2002) test the Stackelberg duopoly in a lab setting and find that behavior is largely inconsistent with the equilibrium predictions of the model. We hypothesize that this inconsistency is a result of differences between the decision making environment implemented in the lab and firm environments in the field. In this paper, we experimentally investigate whether group decision making and a decision “cooling-off” period lead to more profit maximizing Stackelberg behavior in the lab. Specifically, we re-test the Stackelberg duopoly in the lab while implementing (i) two-person decision making groups, and (ii) a 10-min cooling-off period for second movers. In line with the previous studies, we find that second-mover response behavior is largely inconsistent with profit maximization. Furthermore, the implementation of groups and a cooling-off period has little effect on second-mover behavior. However, we find that group first-movers choose significantly lower output levels than individuals. While further from the equilibrium prediction, we show that these lower output choices by groups are more in-line with profit maximizing behavior, conditional on the non-profit maximizing response behavior of second-movers.

Keywords: Stackelberg; Group decision making; Cooling-off periods (search for similar items in EconPapers)
JEL-codes: C72 C91 C92 D20 D43 L10 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167487012000736
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:33:y:2012:i:6:p:1070-1083

DOI: 10.1016/j.joep.2012.07.004

Access Statistics for this article

Journal of Economic Psychology is currently edited by G. Antonides and D. Read

More articles in Journal of Economic Psychology from Elsevier
Bibliographic data for series maintained by Catherine Liu ().