Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 531: Do Opponents' Experience Matter? Experimental Evidence from a Quantity Precommitment Game

ChloƩ Le Coq () and Jon-Thor Sturluson
Additional contact information
ChloƩ Le Coq: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Jon-Thor Sturluson: Institute of Economic Studies, University of Iceland, Postal: Aragata 14, 107 Reykjavik, Iceland

Abstract: This paper investigates why subjects in laboratory experiments on quantity precommitment games consistently choose capacities above the Cournot level - the subgame-perfect equilibrium. We argue that this puzzling regularity may be attributed to players' perceptions of their opponents' skill or level of rationality. In our experimental design, we use the level of experience (the number of periods played) as a proxy for the level of rationality and match subjects with different levels of experience. We first find evidence of capacity choices decreasing, and prices increasing, with the opponent's experience. Futhermore, we investigate the observed behavioural patterns by using the agent-form quantal response equilibrium model by McKelvey and Palfrey (1998). In particular, this framework takes into account any interaction between a player's own experience and that of his opponent. We show how the predictions of this theoretical framework fit well with the experimental data.

Keywords: Oligopoly; Quantity precommitment; Experience; Rationality

JEL-codes: C92; L13

36 pages, First version: May 28, 2003. Revised: November 10, 2011.

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