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The effect of experience in Cournot play

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Abstract

Strategic play requires that players in oligopolies be more sophisticated than in perfectly competitive markets. It thus seems reasonable to assume that player experience becomes important as the environment gets more complicated. We find that subject experience indeed plays an important role. While inexperienced symmetric duopolies play around the Nash-Cournot quantity, experienced duopolies reduce output and get closer to the monopolistic outcome. Both inexperienced and experienced symmetric quadropolies,however, produce output above the Nash-Coumot equilibrium but, even in this case, output is lower for experienced quadropolies. Experience, however, does not make markets less competitive with the introduction of cost asymmetry. Under cost asymmetry, and relative to the equilibrium prediction, high cost firms produce more output than low cost firms. Analysis of individual data tells us that experienced duopolies and quadropolies adjust output in the same direction as their rivals. Due to the strategic substitutability of quantity choice, we interpret this as an attempt at tacitly colluding. This is true for both duopolies and quadropolies.

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  • Rassenti, Stephen, 2010. "The effect of experience in Cournot play," UC3M Working papers. Economics we1024, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we1024
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    1. Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
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    1. José Luis Ferreira & Praveen Kujal & Stephen Rassenti, 2016. "Multiple Openings and Competitiveness of Forward Markets: Experimental Evidence," PLOS ONE, Public Library of Science, vol. 11(7), pages 1-16, July.

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