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The effect of payoff tables on experimental oligopoly behavior

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Abstract

We explore the effects of the provision of an information-processing instrument—payoff tables—on behavior in experimental oligopolies. In one experimental setting, subjects have access to payoff tables whereas in the other setting they have not. It turns out that this minor variation in presentation has non-negligible effects on participants’ behavior, particularly in the initial phase of the experiment. In the presence of payoff tables, subjects tend to be more cooperative. As a consequence, collusive behavior is more likely and quickly to occur.

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Notes

  1. A payoff table is a matrix that depicts the payoff of player i for all possible combinations of i’s and the opponent’s actions. For example, in a Cournot market, the payoff table displays player i’s payoff for all combinations of i’s production choice and the competitors’ total production.

  2. See Huck et al. (2004) for a general discussion of number effects in quantity setting oligopolies.

  3. The two main differences between the study of Requate and Waichman and ours are: first we investigate the effect of an informational aid (payoff table) to no aid at all. Second we investigate the possible effect not only for duopolies but for three different market sizes.

  4. The stage game also has other pure equilibria, e.g., x i =60 for i=1…n.

  5. We had 2+2=4 sessions with 20 subjects each for the quadropoly treatments; 2+2=4 sessions with 15 subjects each for the triopolies; and 1+1=2 sessions with 20 subjects each for the duopoly treatments. Most of the participants were students who were recruited from economics, law, and social sciences departments.

  6. For an English translation of the instructions, see online supplementary material. The original instructions in German are available upon request from the authors.

  7. Single collusive quantities are closer to the symmetric collusive benchmark than to other benchmarks. For example, in duopolies, the symmetric collusive benchmark quantity is 15 while the single quantity in CNE is 20. Hence, all single quantities closer to 15 than to 20 are counted as collusive single quantities.

  8. The reported non-parametric statistical tests use the session averages of independent observations and report two-sided p-values.

  9. We do not consider the last 10 periods to exclude possible end game effects.

  10. Compared to other studies (e.g., reported in Huck et al. 2004) the average quantity in TAB-quadropolies could be considered as somewhat high. However, if we exclude one strong outlier market with 142.3(!) units, the average market quantity in periods 61–90 is only 53.5 (and not 58.2). Without that extreme outlier, the decrease in quantity in the last 30 periods, in TAB-quadropolies gets even highly significant (p=0.015)

  11. Previous studies use similar classifications, see e.g., Fouraker and Siegel (1963) or Huck et al. (2004).

  12. Applying the same logic we label duopoly markets with average quantities above 50 as competitive (COM).

  13. We exclude cases where the total quantity in the market was 60 or higher since in these case the profits of all competitors were zero, i.e., all competitors were equally successful (or equally unsuccessful). We also exclude cases where the player i him/herself was (one of) the most successful competitor(s) in period t−1. In such cases, for player i there is no successful competitor to copy in period t.

  14. Not all the rules were applicable in each period. For example, CR is only applicable if the total quantity in a market is less than or equal to 30. If the total quantity is greater than 30, there is no reasonable CR.

  15. A multinomial logistic regression analysis which we report in the online supplementary material brings out similar results with respect to individual choice behavior of the considered decision rules.

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Acknowledgements

We thank Simon Gächter, Bernd Irlenbusch, Fabian Kleine, Thomas Lauer, Arne Weiß, the editor Jordi Brandts, and three anonymous referees for helpful comments.

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Authors and Affiliations

  1. Laboratory for Experimental Economics, University of Erfurt, Nordhäuser Str. 63, 99089, Erfurt, Germany

    Özgür Gürerk

  2. BonnEconLab, University of Bonn, Adenauerallee 24-42, 53113, Bonn, Germany

    Reinhard Selten

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  1. Özgür Gürerk
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  2. Reinhard Selten
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Correspondence to Özgür Gürerk.

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Gürerk, Ö., Selten, R. The effect of payoff tables on experimental oligopoly behavior. Exp Econ 15, 499–509 (2012). https://doi.org/10.1007/s10683-011-9310-8

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