Forward induction and the excess capacity puzzle: An experimental investigation
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- dc.contributor.author Brandts, Jordica
- dc.contributor.author Cabrales, Antonioca
- dc.contributor.author Charness, Garyca
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2017-07-26T12:07:53Z
- dc.date.available 2017-07-26T12:07:53Z
- dc.date.issued 2003-07-01
- dc.date.modified 2017-07-23T02:07:55Z
- dc.description.abstract While the theoretical industrial organization literature has long argued that excess capacity can be used to deter entry into markets, there is little empirical evidence that incumbent firms effectively behave in this way. Bagwell and Ramey (1996) propose a game with a specific sequence of moves and partially-recoverable capacity costs in which forward induction provides a theoretical rationalization for firm behavior in the field. We conduct an experiment with a game inspired by their work. In our data the incumbent tends to keep the market, in contrast to what the forward induction argument of Bagwell and Ramey would suggest. The results indicate that players perceive that the first mover has an advantage without having to pre-commit capacity. In our game, evolution and learning do not drive out this perception. We back these claims with data analysis, a theoretical framework for dynamics, and simulation results.
- dc.format.mimetype application/pdfca
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=703
- dc.identifier.citation Economic Theory, forthcoming
- dc.identifier.uri http://hdl.handle.net/10230/999
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 703
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword entry
- dc.subject.keyword excess
- dc.subject.keyword capacity
- dc.subject.keyword forward induction
- dc.subject.keyword equilibrium selection
- dc.subject.keyword first-mover advantage
- dc.subject.keyword leex
- dc.subject.keyword Behavioral and Experimental Economics
- dc.subject.keyword Microeconomics
- dc.title Forward induction and the excess capacity puzzle: An experimental investigationca
- dc.type info:eu-repo/semantics/workingPaper