Wieland Müller

The relevance of equal splits in ultimatum games

Abstract In this note we present a slightly altered version of the mini ultimatum game of G. E. Bolton and R. Zwick (1995, Games Econ. Behav. 10 , 95–121). More specifically, we replaced exactly equal splits by nearly equal splits either (slightly) favoring the proposer or the responder. Such a minor change should not matter if behavior was robust. We find, however, a significant change in behavior: Fair offers occur less often when equal splits are replaced by nearly equal splits. Journal of Economic Literature Classification Numbers: C72, C78, C92.

STACKELBERG BEATS COURNOT: ON COLLUSION AND EFFICIENCY IN EXPERIMENTAL MARKETS*

We report on an experiment designed to compare Stackelberg and Cournot duopoly markets with quantity competition. We implement both a random matching and a fixed-pairs version for each market. Stackelberg markets yield, regardless of the matching scheme, higher outputs than Cournot markets and, thus, higher efficiency. For Cournot markets, we replicate a pattern known from previous experiments. There is stable equilibrium play under random matching and partial collusion under fixed pairs. We also find, for Stackelberg markets, that competition becomes less intense when firms remain in pairs but we find considerable deviations from the subgame perfect equilibrium prediction which can be attributed to an aversion to disadvantageous inequality.

To Commit or Not to Commit: Endogenous Timing in Experimental Duopoly Markets

In this paper, we experimentally investigate the extended game with action commitment of Hamilton and Slutsky (1990). In their duopoly game, firms can choose their quantities in one of two periods before the market clears. If a firm commits to a quantity in period 1 it does not know whether the other firm also commits early. By waiting until period 2, a firm can observe the other firms period 1 action. Hamilton and Slutsky predict the emergence of endogenous Stackelberg leadership. Our data, however, does not confirm the theory. While Stackelberg equilibria are extremely rare we often observe endogenous Cournot outcomes and sometimes collusive play. This is partly driven by the fact that endogenous Stackelberg followers learn to behave in a reciprocal fashion over time, i.e., they learn to reward cooperation and to punish exploitation.(This abstract was borrowed from another version of this item.)

Big fish eat small fish: on merger in Stackelberg markets

Abstract In this note we show that the profitability of merger in markets with quantity competition does not only depend on cost conditions but also on the market structure and on the involved firms’ ‘strategic power.’ Our main result is that bilateral merger can be profitable even if costs are linear – but only in the case of a ‘strong’ firm incorporating a ‘weak’ firm which has adverse effects on welfare.

Perfect versus Imperfect Observability--An Experimental Test of Bagwell's Result

In a seminal paper Bagwell (1995) claims that the first mover advantage, i.e. the strategic benefit of committing oneself to an action before others can do, vanishes completely if this action is only imperfectly observed by second movers. In our paper we report on an experimental test of this prediction. We implement three versions of a game similar to an example^? given by Bagwell, each time varying the quality of the signal which informs the second mover. For experienced players we do not find empirical support for Bagwells result. Instead, we find some support for the noisy Stackelberg equilibrium emphasised by van Damme and Hurkens (1997).

The Merger Paradox and Why Aspiration Levels Let it Fail in the Laboratory

We study the merger paradox, a relative of Harsanyis bargaining paradox, in an experiment. We examine bilateral mergers in experimental Cournot markets with initially three or four firms. Standard Cournot-Nash equilibrium predicts total outputs well. However, merged firms produce significantly more output than their competitors. As a result, mergers are not unprofitable. By analysing control treatments, we provide an explanation for these results based on the notion of aspiration levels, and show that the same logic also operates when a new firm enters a market. These results have some general consequences for adaptive play in changing environments.

Job-market signaling and screening: An experimental comparison

We analyze the Spence education game in experimental markets. We compare a signaling and a screening variant, and we analyze the effect of increasing the number of competing employers from two to three. In all treatments, efficient workers invest more often in education and employers pay higher wages to workers who have invested. However, separation of workers is incomplete and wages do not converge to equilibrium levels. In the signaling treatment, we observe significantly more separating outcomes compared to the screening treatment. Increasing the number of employers leads to higher wages in the signaling sessions but not in the screening sessions.

Endogenous timing in duopoly: experimental evidence

In this paper we experimentally investigate the extended game with observable delay of Hamilton and Slutsky (Games Econ.Beh., 1990).Firms bindingly announce a production period (one out of two periods) and then they produce in the announced sequence.Theory predicts simultaneous production in period one but we find that a substantial proportion of subjects choose the second period.

Simultaneous and sequential price competition in heterogeneous duopoly markets: Experimental evidence

We investigate simultaneous and sequential price competition in duopoly markets with differentiated products. In both markets symmetric firms are repeatedly and randomly matched. The strategy method is used to elicit behavior in the sequential market. We find that average leader prices in the sequential market are higher than average prices in the simultaneous market, just as predicted by the theory, whereas average follower prices are not above average prices in the simultaneous market, in contrast to the theoretical prediction. Furthermore, second movers gain from the sequential structure in comparison to simultaneous-move markets whereas first movers do not. As in theory, there is a significant first-mover disadvantage when firms decide sequentially. Finally, to assess the robustness of our findings, we report the results of control treatments varying the matching scheme and the mode of eliciting choices (strategy method vs. standard sequential play).(This abstract was borrowed from another version of this item.)

Burning money and (pseudo) first-mover advantages: an experimental study on forward induction

The mere potential for one player to burn money prior to play has been shown in theory to be an effective device to select this player’s most preferred outcome, e.g., in the battle-of-the-sexes game [J. Econ. Theory 48 (1989) 476, J. Econ. Theory 57 (1992) 36]. In this study we assess the behavioral relevance of this theoretical claim. It is shown that its validity depends on whether the game is played in extensive or normal form. In extensive form games first movers benefit substantially from having the opportunity to burn money in advance. The effect is much weaker in the normal form game. However, in two control treatments first movers who can select between two related games gain an advantage although standard forward induction arguments do not have any bite. These results suggest that we need to make further theoretical advances to understand the role of physical timing