Template-type: ReDif-Paper 1.0
Author-Name: Leufkens Kasper 
Author-Name: Peeters Ronald 
Author-workplace-name: METEOR
Title: Focal prices and price cycles in an alternating price duopoly experiment
Abstract: In the infinite horizon alternating price setting duopoly of Maskin and Tirole (1988), a focal price equilibrium and an equilibrium consisting of Edgeworth cycles coexist. In this study we investigate which of these two equilibria is more likely to emerge by means of a laboratory experiment. In 20 out of 27 observations the focal price equilibrium emerges, while price cycles are observed in only one observation. Furthermore, we study the duopoly in case of a long but finite horizon. Although the corresponding unique subgame-perfect equilibrium consists of Edgeworth cycles, experimentally we still observe a focal price in the majority of the observations. Nevertheless, price cycles are observed far more often than for the infinite horizon setting.
Keywords: microeconomics ; 
Series: Research Memoranda
Creation-Date: 2008
Number: 021
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:2c5ebf28-a681-4fb5-9ede-5ac9b09eaff4/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 213753
Handle: RePEc:unm:umamet:2008021