Some Results of Experimental Duopoly Markets with Demand Inertia

Abstract

Subjects played twice a multistage duopoly game with demand inertia. Their actual behavior is different from the unique subgame perfect equilibrium solution of the game. In the second plays of the game, subjects tend to behave more cooperatively than in the first plays: profits, prices, and price stability are significantly higher. The individual markets in the second plays are classified into strongly cooperative, weakly cooperative, and aggressive markets. Each market type shows a particular pattern of behavior. Average price and price instability of a market can be used as indicators for classification. Copyright 1993 by Blackwell Publishing Ltd.