Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs

Siddiqi, Hammad (2009): Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs.

Abstract

Mullainathan, Schwartzstein, & Shleifer [Quarterly Journal of Economics, May 2008] put forward a model of coarse thinking. The essential idea behind coarse thinking is that agents put situations into categories and then apply the same model of inference to all situations in a given category. We extend the argument to strategies in a game-theoretic setting and propose the following: Agents split the choice-space into categories in comparison with salient choices and then choose each option in a given category with equal probability. We provide an alternative explanation for the puzzling results obtained in a Bertrand competition experiment as reported in Abbink & Brandts [Games and Economic Behavior, 63, 2008]

• Item Type: MPRA Paper
• Language: English
• Keywords: Laboratory experiments, Oligopoly, Price competition, Co-ordination games, Coarse Thinking
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C90 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

References

Abbink, K., & Brandts, J. (2008), “Pricing in Bertrand competition with increasing marginal costs”. Games and Economic Behavior, 63, pp. 1-31.

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Mullainathan, S., Schwartzstein, J., & Shleifer, A. (2008) “Coarse Thinking and Persuasion”. The Quarterly Journal of Economics, Vol. 123, Issue 2 (05), pp. 577-619

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