Price competition and market concentration: An experimental study

price competition;industrial concentration

Admissibility and Common Knowledge

The implications of assuming that it is commonly known that players consider only admissible best responses are investigated.Within a states-of-the-world model where a state, for each player, determines a strategy set rather than a strategy the concept of fully permissible sets is defined.General existence is established, and a finite algorithm (eliminating strategy sets instead of strategies) is provided.The concept refines rationalizability as well as the Dekel-Fudenberg procedure, and captures a notion of forward induction.When players consider all best responses, the same framework can be used to define the concept of rationalizable sets, which characterizes rationalizability.game theory

Efficiency, Reciprocity and Expectations in an Experimental Game

We experimentally investigate the nature of strategic interaction in a 2-player game.Player 1may take x Dutch guilders (f x) and end the game (player 2 then gets f 0), or let player 2 split f 20 between the players. x is a treatment variable taking values of f 4, 7, 10, 13, and 16.We find that most players 2 "give away" positive amounts (f6 on average), but their choices are independent of x.We explicitly measure the players' beliefs and find that many players 1 expect to get back no more than f x but nevertheless let player 2 split the f 20, and that the behavior by the players 2 is consistent with a theory of a guilt based on psychological game theory.game theory

A Theory of Sequential Reciprocity

Many experimental studies indicate that people are motivated by reciprocity. Rabin (1993) develops techniques for incorporating such concerns into game theory and economics. His model, however, does not fare well when applied to situations with an interesting dynamic structure (like many experimental games), because it is developed for normal form games in which information about the sequential structure of a strategic situation is suppressed. In this paper we develop a theory of reciprocity for extensive games in which the sequential structure of a strategic situation is made explicit. We propose a new solution concept— sequential reciprocity equilibrium—which is applicable to extensive games, and we prove a general equilibrium existence result. The model is applied in several examples, including some well known experimental games like the Ultimatum game and the Sequential Prisoners’ Dilemma.Reciprocity;extensive games

Indirect Evolution Versus Strategic Delegation: A Comparison of Two Approaches to Explaining Economic Institutions

The two major methods of explaining economic institutions, namely by strategic choices or by (indirect) evolution, are compared for the case of a homogenous quadratic duopoly market. Sellers either can provide incentives for their agents to care for sales (amounts) or evolve as sellers who care for sales in addition to profits. Whereas strategic delegation does not change the market results as compared to the usual duopoly solution, indirect evolution causes a more competitive behavior. Thus the case at hand suffices to demonstrate the difference between the two approaches in explaining economic institutions.noncooperative games;duopoly;organizational behavior

The consistency principle for set-valued solutions and a new direction for the theory of equilibrium refinements

game theory;equilibrium theory

Admissibility and Common Knowledge

The implications of assuming that it is commonly known that players consider only admissible best responses are investigated.Within a states-of-the-world model where a state, for each player, determines a strategy set rather than a strategy the concept of fully permissible sets is defined.General existence is established, and a finite algorithm (eliminating strategy sets instead of strategies) is provided.The concept refines rationalizability as well as the Dekel-Fudenberg procedure, and captures a notion of forward induction.When players consider all best responses, the same framework can be used to define the concept of rationalizable sets, which characterizes rationalizability.