Does opponents’ experience matter? Experimental evidence from a quantity precommitment game

► Opponent's experience has a systematic effect on behavior. ► Subjects choose higher capacity when playing against inexperienced players. ► Inexperienced players are less price responsive. ► Learning by imitation matters but opponent's experience has still a strong effect. This paper inve...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2012-09, Vol.84 (1), p.265-277
Main Authors: Le Coq, Chloé, Sturluson, Jon Thor
Format: Article
Language:English
Subjects:
Design of experiments
Economic models
Experience
Experiment
Experiments
Game theory
Games
Investment
Investment policy
Laboratories
Laboratory
Oligopoly
Perceptions
Pricing
Quantity precommitment
Rationality
Regularity
Studies
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Summary:► Opponent's experience has a systematic effect on behavior. ► Subjects choose higher capacity when playing against inexperienced players. ► Inexperienced players are less price responsive. ► Learning by imitation matters but opponent's experience has still a strong effect. 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. We first show theoretically that it is the case by modelling a two-stage game of capacity investment and pricing with bounded rational players. We then design an experiment in which we use the level of experience as a proxy for the level of rationality and match subjects with different levels of experience. We find significant differences in behavior depending on opponents’ experience; moreover, players facing inexperienced players tend to choose higher capacities than they would otherwise.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2012.03.015