Complexity and individual rationality in a dynamic duopoly: an experimental study

This paper reports the results of a dynamic duopoly experiment where individual decisions are matched with optimal strategies in treatments with different strategic environments. Experimental evidence confirms that the rival's behavior is a factor affecting the individual performance. At the aggregate level, we have found that the subjects' ability to identify the theoretical benchmark increases (decreases) when the rival is cooperative (aggressive). Moreover, the analysis of individual dynamic decisions shows that the subjects follow a best reply process and that learning is quicker when the rival is cooperative. This evidence points out that the intensity of competition is a determinant of the complexity of a oligopoly situation.