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Competitive behavior in market games: Evidence and theory

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  • Duffy, John
  • Matros, Alexander
  • Temzelides, Ted

Abstract

We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1973) [21]. Market games obtain Pareto inferior (strict) Nash equilibria, in which some or possibly all markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient Nash equilibria in which all markets are open. As the number of subjects participating in the market game increases, the Nash equilibrium they achieve approximates the associated competitive equilibrium of the underlying economy. Motivated by these findings, we provide a theoretical argument for why evolutionary forces can lead to competitive outcomes in market games.

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  • Duffy, John & Matros, Alexander & Temzelides, Ted, 2011. "Competitive behavior in market games: Evidence and theory," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1437-1463, July.
    • Handle: RePEc:eee:jetheo:v:146:y:2011:i:4:p:1437-1463
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    References listed on IDEAS

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    Cited by:

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    2. Jiang, Janet Hua & Puzzello, Daniela & Zhang, Cathy, 2023. "Inflation, Output, and Welfare in the Laboratory," European Economic Review, Elsevier, vol. 152(C).
    3. Alex Dickson & Roger Hartley, 2011. "Trade in bilateral oligopoly with endogenous market formation," Working Papers 1104, University of Strathclyde Business School, Department of Economics.
    4. Burkhard C. Schipper & Peter Duersch & Joerg Oechssler, 2010. "Pure Saddle Points and Symmetric Relative Payoff Games," Working Papers 301, University of California, Davis, Department of Economics.
    5. Mandel, Antoine & Gintis, Herbert, 2016. "Decentralized Pricing and the equivalence between Nash and Walrasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 84-92.
    6. Athreya, Kartik B., 2014. "Big Ideas in Macroeconomics: A Nontechnical View," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262019736, April.
    7. Régis Breton & Bertrand Gobillard, 2005. "Robustness of equilibrium price dispersion in finite market games," Post-Print halshs-00257207, HAL.
    8. Peter Duersch & Jörg Oechssler & Burkhard Schipper, 2012. "Pure strategy equilibria in symmetric two-player zero-sum games," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(3), pages 553-564, August.
    9. Duersch, Peter & Oechssler, Jörg & Schipper, Burkhard C., 2010. "Pure Saddle Points and Symmetric Relative Payoff Games," Working Papers 0500, University of Heidelberg, Department of Economics.
    10. Rud, Olga A. & Rabanal, Jean Paul & Sharifova, Manizha, 2019. "An experiment on the efficiency of bilateral exchange under incomplete markets," Games and Economic Behavior, Elsevier, vol. 114(C), pages 253-267.
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    12. César Martinelli & Jianxin Wang & Weiwei Zheng, 2023. "Competition with indivisibilities and few traders," Experimental Economics, Springer;Economic Science Association, vol. 26(1), pages 78-106, March.
    13. Dimitrios Xefteris & Nicholas Ziros, 2017. "Strategic Vote Trading in Power Sharing Systems," American Economic Journal: Microeconomics, American Economic Association, vol. 9(2), pages 76-94, May.
    14. Jiang, Janet Hua & Puzzello, Daniela & Zhang, Cathy, 2021. "How long is forever in the laboratory? Three implementations of an infinite-horizon monetary economy," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 278-301.
    15. Toraubally, Waseem A., 2022. "Strategic trading and Ricardian comparative advantage," Journal of Economic Behavior & Organization, Elsevier, vol. 195(C), pages 428-447.
    16. Dmitry Levando, 2012. "A Survey Of Strategic Market Games," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 57(194), pages 63-106, July - Se.
    17. John Duffy & Daniela Puzzello, 2022. "The Friedman Rule: Experimental Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 671-698, May.
    18. Vasin, A., 2010. "Evolutionary Game Theory and Economics. Part 2. Stability of Equilibria. Special Features of Human Behavior Evolution," Journal of the New Economic Association, New Economic Association, issue 5, pages 10-27.
    19. Alex Dickson & Simone Tonin, 2021. "An introduction to perfect and imperfect competition via bilateral oligopoly," Journal of Economics, Springer, vol. 133(2), pages 103-128, July.
    20. Zhenzhi Yang & Hong Shi & Dan Yang & Xuanyu Ren & Yinchun Cai, 2015. "Analysis of Core Stakeholder Behaviour in the Tourism Community Using Economic Game Theory," Tourism Economics, , vol. 21(6), pages 1169-1187, December.

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