War of Attrition: Evidence from a Laboratory Experiment on Market Exit

Abstract

We report an experiment designed to study whether inecient rms are systematically driven from overcrowded markets. We implement a series of 3800 wars of attrition of a type modeled in Fudenberg and Tirole (1986). Exit tends to be ecient and exit times conform reasonably well to point predictions of the model. Moreover, we nd that subjects respond similarly to implementations framed in terms of losses as they do to those framed in terms of gains.Market exit, war of attrition, experimental economics