Brandts, Jordi and Yao, Lan (2010): Ambiguous Information and Market Entry: An Experimental Study.
Download (393Kb) | Preview
We study experimentally how entry into a market with uncertain capacity is affected by the type of information potential entrants have available. Our focus is on behavior in a two-market entry game. In the risky information market there are two possible market capacities, both known to occur with probability 1/2. In the ambiguous information market the two possible market capacities effectively occur with probability 1/2 but participants are only told that there is uncertainty about capacities. We find that average entry is higher under ambiguous information than under risky information. To control for comparison effects and the effects of strategic interaction in the two market environment we also study a two-lottery individual decision problem and one market entry games with ambiguous and risky information. For these two cases the experimental results show no difference between information conditions. Our results are consistent with the notion that complex strategic interaction leads to higher market entry under ambiguous information.
|Item Type:||MPRA Paper|
|Original Title:||Ambiguous Information and Market Entry: An Experimental Study|
|Keywords:||Market entry games; Experiment; Risk; Ambiguity.|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior
M - Business Administration and Business Economics; Marketing; Accounting > M2 - Business Economics
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games
|Depositing User:||Lan YAO|
|Date Deposited:||23. Sep 2010 15:07|
|Last Modified:||13. Feb 2013 22:27|
 Abbink, K., Brandts, J., (2008), "24. Pricing in Bertrand Competition with Increasing Marginal costs", Games and Economic Behavior, vol 63(1), 1-31.
 Abbink, K., Brandts, J., (forthcoming), "Drei Oligopolexperimente", in: The Selten School of Behavioral Economics. A Collection of Essays in Honor of Reinhard Selten. Ockenfels, Axel; Sadrieh, Abdolkarim (Eds.), Springer.
 Baldwin, J. R., (1995), The Dynamics of Industrial Competition, Cambridge: Cambridge University Press.
 Camerer, C. F., Ho, T-H, Chong, J-K, (2004), "A Cognitive Hierarchy Model of One-Shot Games", Quarterly Journal of Economics, 119(3), 861-898.
 Chen, Y., Katuscak, P., Ozdenoren, E., (2007), "Sealed Bid Auctions with Ambiguity: Theory and Experiments", Journal of Economic Theory, 136, 513-535.
 Camerer, C., Lovallo, D., (1999), "Overconfidence and Excess Entry: An Experimental Approach", American economic review 89(1), 306-318.
 Camerer, C., Weber, M., (1992), "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity", Journal of Risk and Uncertainty 5, 325-37.
 Chow, C. C., Sarin, R. K., (2001), "Comparative Ignorance and the Ellsberg Paradox", The Journal of Risk and Uncertainty, 22(2), 129-139.
 Duffy, J., Hopkins, E., (2005), "Learning, Information, and Soring in Market Entry Games: Theory and Evidence.", Games and Economic behavior 51, 31-62.
 Dunne, T., Roberts, M. J., Samuelson, L(1988), "Patterns of Firm Entry and Exit U.S. Manufacturing Industries", Rand Journal of Economics, 19(4), 495-515.
 Dunne, T., Roberts, M. J., Samuelson, L. (1989a), "Firm Entry and Postentry Performance in the U.S. Chemical Industries", Journal of Law and Economics, 32(2), 233-71.
 Dunne, T., Roberts, M. J., Samuelson, L., (1989b), "The Growth and Failure of U.S. Manufacturing Plants", Quarterly Journal of Economics, 104(4), 671-98.
 Drouvelis, M., Muller, W., Possajennikov, A. (2009), "Signaling Without Common Prior: An Experiment", Working paper.
 Ellsberg, D., (1961), "Risk, ambiguity and the Savage Axioms", Quarterly Journal of Economics, 75, 643-669.
 Einhorn, H. J., Hogarth, R. M., (1986), "Decision Making under Ambiguity", Journal of Business 59(4), 225-250.
 Erev I., Rapoport, A., (1998), "Coordination Magic and Reinforcement Learning in a Market Entry Game", Games and economic behavior 23, 146-175.
 Fischbacher, U., (2007), "z-Tree: Zurich Toolbox for Ready-made Economic Experiments", Experimental Economics, Experimental Economics 10(2), 171-178.
 Fox, C. R., Tversky, A., (1995), “Ambiguity Aversion and Comparative Ignorance”, The Quarterly Journal of Economics, 110, 585-603.
 Furnham, A., Tracy R., (1995), "Tolerance of Ambiguity: A Review of the Concept, Its Measurement and Applications", Current Psychology, vol 14(3), 179-199.
 Geroski, P. A., (1991), "Some Data-Driven Reflections on the Entry Process", in Paul A. Geroski and J. Schwalbach, eds., Entry and Market Contestability: An International Comparison. Oxford: Basil Blackwell, 282-296.
 Grieco, D., Hogarth, R. M., Karelaia, N., (2007), "Risk Taking and Excess Entry: The Roles of Confidence and Fallible Judgment", Working paper.
 Greiner, B., (2004), "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working paper.
 Hsu, M., Meghana B., Ralph A., Daniel T., Colin F. C., (2005), "Neural Systems Responding to Degrees of Uncertainty in Human Decision-Making", Science, vol 310, 1680-1683.
 Jamison, J. Karlan, D. S., (2009), "When Curiosity Kills the Profits: An Experimental Examination", Games and Economic Behavior, 66, 830—840.
 Kahneman, D., (1988), "Experimental Economics: A Psychological Perspective", in R. Tietz, Wulf Albers, and Reinhard Selten, eds., Bounded rational behavior in experimental games and markets. New york: Springerverlag.
 Knight, F. H., (1921), Risk, Uncertainty, and Profit. Hart, Schaffner, and Marx Prize Essays, no. 31. Boston and New York: Houghton Mifflin.
 Kocher, M. G., Trautmann, S. T., (2010), "Selection into Auctions for Risky and Ambiguous Prospects", Economic Inquiry, forthcoming.