Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs

Hammad Siddiqi ()

MPRA Paper from University Library of Munich, Germany

Abstract: Mullainathan, Schwartzstein, & Shleifer [Quarterly Journal of Economics, May 2008] put forward a model of coarse thinking. The essential idea behind coarse thinking is that agents put situations into categories and then apply the same model of inference to all situations in a given category. We extend the argument to strategies in a game-theoretic setting and propose the following: Agents split the choice-space into categories in comparison with salient choices and then choose each option in a given category with equal probability. We provide an alternative explanation for the puzzling results obtained in a Bertrand competition experiment as reported in Abbink & Brandts [Games and Economic Behavior, 63, 2008]

Keywords: Laboratory experiments; Oligopoly; Price competition; Co-ordination games; Coarse Thinking (search for similar items in EconPapers)
JEL-codes: C72 C90 D43 D83 L13 (search for similar items in EconPapers)
Date: 2009-02-19
New Economics Papers: this item is included in nep-com, nep-exp, nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13516

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