Market entry: An experimental investigation

Experimental oligopoly markets for homogeneous products were conducted to investigate cooperative behaviors when subjects were allowed to choose whether or not to enter the market. Two types of games were designed. One was a one-stage game in which subjects were given a payoff table and asked only to make an entry decision; the other was a two-stage game in which subjects had to decide whether or not to enter and then compete either in prices or in quantities. Data indicated a significant tendency to establish entry cycles, with players entering one at a time, in the one-stage “price-setting” markets. On the contrary, this tendency was never observed in the one-stage “quantity-setting” markets. The results in the two-stage game reinforced the difference in the observed behaviors between the price- and quantity-setting markets. In the former, subjects generally behaved in conformity with the Nash equilibrium predictions, whereas in the latter these predictions were not observed.