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Action revision, information and collusion in an experimental duopoly market

Nilanjan Roy

MPRA Paper from University Library of Munich, Germany

Abstract: We report on an experiment designed to study a dynamic model of quantity competition where firms continuously revise their production targets prior to the play of the "one-shot" game. We investigate how the observability of rival firm's plans and the technology for implementation of revised actions affect market competitiveness. Under a real-time revision game where payoffs are determined only by the quantities prepared at the end, play converges to the Cournot-Nash output when rival's plans are unobservable. If plans cannot be hidden from competitors, choices are even more competitive than the static Nash equilibrium, thereby showing a negative value of information with lower profits. With stochastic revision, where opportunities to revise arrive according to a Poisson process and the quantities selected at the last opportunity are implemented, collusion is much frequent. This shows, more generally, that cooperation can be observed even when individuals interact only once.

Keywords: Cournot duopoly; real-time revision; stochastic revision; experiment; information; imitation; best response (search for similar items in EconPapers)
JEL-codes: C72 C92 D22 D43 D83 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-exp and nep-gth
Date: 2017-02-23
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