Can market competition reduce anomalous behaviours

Lawrence Choo () and Xiaoyu Zhou

No 08/2019, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: We use an experiment to study whether market competition can reduce anomalous behaviour in games. In different treatments, we employ two alternative mechanisms, the random mechanism and the auction mechanism, to allocate the participation rights to the red hat puzzle game, a well-known logical reasoning problem. Compared to the random mechanism, the auction mechanism significantly reduces deviations from the equilibrium play in the red hat puzzle game. Our findings show that under careful conditions, market competition can indeed reduce anomalous behaviour in games.

Keywords: market competition; market selection hypothesis; auctions; bounded-rationality; red hat puzzle (search for similar items in EconPapers)
JEL-codes: C70 C90 D44 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-des, nep-exp, nep-gth and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:082019

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