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Estimating Reaction Functions in Experimental Duopoly Markets

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  • Robert Feinberg

Abstract

It is well known that, in general, there are a multitude of supergame equilibria in noncooperative duopoly markets, suggesting the inability (without severe restrictions) of theory alone to determine the 'best' strategy in a repeated game context. Axelrod's prisoner's dilemma simulation tournaments have led to the view of the somewhat cooperative 'tit-fortat' approach as an attractive strategy, in particular compared to an alternative strategy of 'always defecting' (choosing at all times the single period Nash solution). In this paper, we use data obtained from two independent posted-offer duopoly experiments to investigate the actual dynamic reaction functions of participants. Neither of the above seems to be commonly employed as a pure strategy.We also provide some support for the Axelrod view of 'tit-for-tat' as the most profitable strategy.

Suggested Citation

  • Robert Feinberg, 1999. "Estimating Reaction Functions in Experimental Duopoly Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(1), pages 57-63.
    • Handle: RePEc:taf:ijecbs:v:6:y:1999:i:1:p:57-63
    DOI: 10.1080/13571519984313
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    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    2. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    3. Feinberg, Robert M & Husted, Thomas A, 1993. "An Experimental Test of Discount-Rate Effects on Collusive Behaviour in Duopoly Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 153-160, June.
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    Cited by:

    1. Chang, Ming-Chung & Chiu, Yung-Ho, 2008. "The analysis of a price war strategy under market demand growth," Economic Modelling, Elsevier, vol. 25(5), pages 868-875, September.
    2. Werner Güth & Kirsten Häger & Oliver Kirchkamp & Joachim Schwalbach, 2016. "Testing Forbearance Experimentally: Duopolistic Competition of Conglomerate Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 63-86, February.

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