Keser, Claudia

"Cooperation in Symmetric Duopolies with Demand Inertia"

JEL codes: C90, D43, C73
Keywords: experimental economics, duopoly, dynamic games

Abstract:  We present an experiment on a price-setting duopoly with demand inertia and symmetric costs. Subjects gain experience in the game by playing it twice. In the first play, we observe prices above the subgame perfect equilibrium solution. All markets show considerable price instability. In the second play, the price level is higher than in the first play. About half the markets exhibit price instability, while the remaining markets are characterized by high stable prices. Comparing these results with those of a similar duopoly with asymmetric costs, we conclude that markets with symmetric costs show significantly more cooperative behavior.

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