Does Informational Equivalence Preserve Strategic Behavior? An Experimental Study on Trockel's Game

Papatya Duman ()
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Papatya Duman: Paderborn University

No 117, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: The purpose of the present study is to experimentally test a version of the classical Chain Store Game (CSG) paradox, proposed by Trockel (1986), and determine whether one of the two theories of Induction and Deterrence, which were originally tested competitively by Selten (1978), may better account for the results. With complete and perfect information, the CSG of Selten (1978) was designed to analyze the role of reputation in repeated market interactions. Its results were discussed in two different ways: one is based on backward induction, and the other is intuitively derived from a deterrence argument. As the two explanations are incompatible, alternative models have been proposed to understand them better. The alternative game proposed by Trockel is an imperfect information version of the CSG in which the order of the two players is changed in each round and the ’Out-Aggressive’ equilibrium is used to build reputation. The existence of more than one equilibrium is the basis for the building of reputation. To the best of my knowledge, this study is the first attempt to experimentally test this alternative game with the same purpose.

Keywords: Chain Store Game; reputation building; entry deterrence; Trockel's game (search for similar items in EconPapers)
JEL-codes: C7 C9 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2018-07
New Economics Papers: this item is included in nep-exp and nep-gth
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