To Commit or Not to Commit: Endogenous Timing in Experimental Duopoly Markets |
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Authors: | Steffen Huck, Wieland Mü ller,Hans-Theo Normann, |
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Affiliation: | a Department of Economics, Royal Holloway, Egham, Surrey, TW20 0EX, UK;b Institute for Economic Theory III, Department of Economics, Humboldt University, Spandauer Strasse 1, 10178, Berlin, Germany;c Institute for Economic Policy, Department of Economics, Humboldt University, Spandauer Strasse 1, 10178, Berlin, Germany |
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Abstract: | In this paper we experimentally investigate the extended game with action commitment of Hamilton and Slutsky (1990, Games Econ. Behavior2, 29–46). In their duopoly game firms can choose their quantities in one of two periods before the market clears. If a firm commits to a quantity in period 1, it does not know whether the other firm also commits early. By waiting until period 2, a firm can observe the other firm's period-1 action. Hamilton and Slutsky predicted the emergence of endogenous Stackelberg leadership. Our data, however, do not confirm the theory. While Stackelberg equilibria are extremely rare, we often observe endogenous Cournot outcomes and sometimes collusive play. This is partly driven by the fact that endogenous Stackelberg followers learn to behave in a reciprocal fashion over time, i.e., they learn to reward cooperation and to punish exploitation. Journal of Economic Literature Classification Numbers: C72, C92, D43. |
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