Social competition in low-information Cournot markets

Enrique Fatas (), Antonio Morales () and Ainhoa Jaramillo-Gutiérrez

No 15-15, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We offer theoretical and experimental evidence suggesting that social competition has a first order effect in low-information Cournot markets. Using data from a stylized laboratory experiment, we show that firms use average market profits as a reference point to assess their relative performance following a simple but powerful logic: earnings above the market reinforces their current choice; scoring below the market prompts dissatisfaction and experimentation with new quantities. This "win-stay, lose-shift" heuristics converges to the competitive outcome because the Walrasian quantity is the unique action that never yields profits below the average profits in the market. This prediction is neatly confirmed in the lab. Social competition leads to Walrasian quantities even when firms do not receive information about the most successful rival, and imitation is not possible.

Keywords: experiments; Cournot competition; Walrasian convergence; social comparison (search for similar items in EconPapers)
JEL-codes: C9 L13 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-com and nep-exp
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Citations: View citations in EconPapers (1)

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