Information and competition in Cournots model: evidence from the laboratory

Pablo Fajfar1 2
E-mail: pfajfar@econ.uba.ar
August 2005

Abstract:
The evolutive configuration of Cournots model laid out by Vega-Redondo (1997) leads, in
scenarios where there is greater knowledge about opponents strategies, to firms purely
imitative behavior converging globally towards a Walrasian equilibrium rather than to a NashCournot one. Experimental studies carried out by Huck, S.; Normann, H., and Oechssler, J.
(1998), & (1999) validate this hypothesis on the basis that firms are not able to adjust their
output in all periods. Although it is true that at theoretical level the inclusion of inertia is
necessary, it is also true that, in experimental terms, it is innocuous in order to guarantee the
convergence to the Nash-Cournot Equilibrium (Huck, S.; Normann, H., & Oechssler, J.
2002). For this reason, this paper shows that, when firms can adjust output levels in every
period, increased knowledge about the opponents becomes irrelevant in terms of the
markets competitive performance.

Jel classifying numbers: L13, C92, C72, D83

Centro de Investigacin en Mtodos Cuantitativos Aplicados a la Economa y la Gestin,

Facultad de Ciencias Econmicas de la Universidad de Buenos Aires Argentina,
http://www.econ.uba.ar/www/institutos/cma/
2
Facultad de Ciencias Empresariales, Universidad Abierta Interamericana Argentina.

I. Introduction
The effects of greater knowledge about opponents strategies are the object of recurring
discussion in the context of issues related to the industrial organization of oligopolistic
markets. This debate intensifies when the productive units compete by quantities within
scenarios of symmetrical costs and technologies.1
When applied to theoretical models of competition a la Cournot and with symmetrical NashCournot equilibriums, the formal consequence of increased information is that the firms
aggregated level of output approaches to the Walrasian equilibrium rather than to the perfect
subgame Nash-Cournot equilibrium. Based on behavioral patterns such as the one of
following the most successful firm, Vega-Redondo (1997) demonstrated that a purely
imitative dynamics globally converges to the Walrasian equilibrium.2 3 One can
spontaneously understand the reason for such conclusion by supposing the existence of a
simple market in which inverse demand and individual production cost are known by the
firms. In each period, all producing units must decide the quantity to produce by observing
the market price and quantity that prevailed in the previous period.4 To the extent that the
information regarding the individual quantities produced by the opponents is known - that is,
to the extent that it is disaggregated the firm that adopts the mechanism of following the
most successful firm will tend to produce a similar quantity than the one of the latter. If the
price was higher than the (symmetrical) marginal cost, and if it is assumed that there are no
fixed costs, then the firm with the greatest profit will have been the one of the largest output.
It should be noted, then, that whoever imitates the best performer would end up necessarily
increasing his production and sequentially decreasing the market price. Assuming that the
behavioral pattern previously described has a relevant relative weight in the firms that make
up the market, the performance of the latter will tend to approach to the Walrasian
equilibrium.
The experimental evidence of Huck, S.; Normann, H., and Oechssler, J. (1998), & (1999) are
consequent with Vega Redondos model. Both works analyzed the aggregate and individual
quantities produced by a group of four firms in the laboratory. In every case, the inverse
demand and the (symmetrical) marginal costs were known by and amongst the firms that
made up the market. Moreover, the number of periods in the game was of common
knowledge. At every stage of the game, each firm had a probability of 2/3 of being able to
adjust its output on the basis of the information gathered from the previous period.5 This
information varied according to two groups.6 One of them (the one with less information) only
knew the aggregated quantities produced by the opponents, as well as the market price.
The other group (the one with the greatest amount of information) had specific knowledge of
the individual quantities produced by each one of the opponents, as well as of the market
price. The results obtained in terms of aggregated quantities (1998) turned out to be closer
to the Walrasian equilibrium in those groups with the greatest amount of information. As for
the study of individual quantities (1999), the results showed that the adjusting dynamics of

The first references on the subject were Stigler (1964); Fouraker & Siegel (1963)
Vega- Redondo takes an evolutive approach to game theory. In such approach, agents observe
relative payments rather than absolute ones (classic approach to game theory). To the extent that
agents observe relative payments, evolutive stability is explained by the fact that no player receives
less profit than the rest.
3
This paper will not discuss the formal structure of Vega-Redondos model, but the experimental
evidence to it.
4
On a formal ground, Vega-Redondo supposes the existence of probability p common to every
firm of not being able to adjust the output in each period.
5
The inclusion of the probability of output adjustment responds, once again, to Vega-Redondo.
6
This dichotomy refers to the work of 1998.
2

the markets/groups with more information significantly approached the mechanism of

imitating the most successful firm.7
In a previous study (2004) I have attempted to repeat the H.-N.-O. experiment, finding that
for any level of information about the opponents, the aggregated quantities tended to be
closer to the Nash-Cournot equilibrium at the final stages of the game, in scenarios with no
inertia. Although the greater amount of information phenomenon wasnt exhaustively
treated, the results obtained didnt allow us to assert that the greater amount of information
about the opponents had a significant impact on the level of competition.8
In the present work I will try to go deep into my previous study, adding enough experimental
evidence to question a priori that the alternative between Cournot and Walras is a result of
the amount of information about the opponents. The only difference concerning this issue
with Huck, S.; Normann, H. and Oechssler, J. (1998) (1999) is, again, that firms can adjust
their output in every period. According with this fact, it is important to clarify that the same
authors cant find significant differences respect to the inclusion of inertia and the
convergence to the Nash-Cournot Equilibrium in a later paper (Huck, S.; Normann, H. y
Oechssler, J. 2002)9. Since that, the same treatment must be proved for the rivals
information phenomenon and the markets competitive performance.
In the next section the different views of the theoretical model are presented. Section III sets
forth the experiment, which was carried out, as well as the research hypotheses. In section
IV I present the experiment results and, finally, in section V, the conclusions.

The work also included a study on the aggregate quantities. These were significantly greater in the
groups with more information.
8
The only evidence found was that the proximity to the Nash-Cournot equilibrium was smaller in the
groups with less information about the opponents for the last observations of the game.
9
The paper mentioned is Stability of the Cournot process experimental evidence, International
Journal of Game Theory 31: 123 136 (2002).

II. The Model

Let i be a set of N firms that compete simultaneously for a period of time t = {1, 2,3, 4...T } in a
market

where

inverse

demand

is

P ( Qt ) = max [ ( a bQ t ), 0 ] where Q t =

known

and

is

defined

as

q
i =1

it

. In addition, consider the marginal costs of

production to be symmetrical and known, so that i N t T , C (qit ) = cqit , and consider

that there is no temporal discount factor. Based on the foregoing, the only subgame perfect
Nash equilibrium is the Cournot equilibrium itself, this is:
1. i N t T qitBR =

(a c)
(a c)
, being the total quantity supplied Qt = N
. It should
b(1 + N )
b(1 + N )

be noted that this result corresponds to the conjunction of best response (strategic behavior)
of each of the firms that make up the market.
Suppose, now, a bounded rationality scenario, where firms use only the historical information
to define their strategies. From a formal point of view, firms observe the total quantity and
price of the previous period and, according to that, generated their own supply. Starting from
this assumption, the profit function of the firm j N / j i will take the following form:

N 1

2. Max q jt ( q( N j ),t 1 ) = a bq jt b qi ,t 1 c q jt , deriving as Best Respond Function:

i =1
i j

3.

ac
1 N 1
q (q( N j ),t 1 ) =
qi,t 1 . Clearly, this system does not converge
2b
2 i =1
BR
jt

i j

asymptotically towards the Nash Cournot equilibrium like the one stated in 1., given the
existence of roots outside the unit circle.10 However, the inclusion of certain inertia in the
process of adjustment allows us to create the conditions for their convergence. Be it formally
considered that at each stage t = 1, 2,3....T of the game, each firm i N has a probability
(0,1) of not being able to adjust their output.11 That is, the possibility of output adjusting is
forbidden by technical or cost related reasons in some periods. Note that this partial output
adjustment process allows us to re-state the best response function presented in 3. as:

4.

q (q( N j ),t 1 ) = q j ,t 1
BR
jt

a c
1 N 1

qi ,t 1 , (0,1) ,
+ (1 )
2b

2 i =1

i j

asymptotical solution i, j N ; qit = q jt =

10
11

being

its

(a c)
.
b(1 + N )

Convergence rests guaranteed only for the case of a duopoly.

For a complete analysis of this process see Szidarovszky, F., Rassenti, S., & Yen, J. (1994).

Consider now the layout of Cournots model by Vega-Redondo (1997) presented in the
introduction. For that, suppose that firms adopt an attitude of imitation of the best in those
periods in which they are able to adjust their output.12 The necessary condition for such
behavior is that firms can dispose of information about the individual quantities produced by
their opponents (in addition to the price).13 In this case, the set of relevant information at t
for determining the quantities at t + 1 will be:
5.

St = {qit / i {1, 2....N} qit qit i = 1, 2,3...N } where qi ' t = q ( q ( N i ),t )

i ,t

Note that firms j attitude represented in 4 will now be:

6. q jt = qi ,t 1 where qi ,t 1 St 1 .14
Intuitively, this result is easily understood: to the extent in which t 1 price has been greater
than the marginal cost, the firm with the greatest profit will have been the one with the
greatest output. Given that the behavioral pattern of firms is the one of following the company
with the greatest profit, the quantities produced will tend sequentially to increase.15
The experiments carried out by Huck, S.; Normann, H., and Oechssler, J. (1998) - (1999)
tried to test equations 4 and 6 on the basis of greater amounts of information about the
opponents. Based on a context where the probability of revising the quantities was of 2/3, the
results obtained in terms of aggregate output quantities was significantly greater when
information regarding the individual quantities produced by the opponents was available by
the agents. On the other hand, concerning the individual adjustments dynamics, equation 6,
had a greater explanatory power than equation 4 in groups with information about the
quantities produced by the opponents.16

12

Consider, in addition, that deviation from this behavior tends to zero as the stages of the game
increase. In other words, the probability of mutation or making mistakes tends to be negligible as the
game develops.
13
Note that for the fulfillment of 4. only information regarding the aggregate quantity and the price is
required.
14
Note that, while the result obtained in 4. respond to a strategic behavior in agents with bounded
rationality, the one of imitation of the best doesnt. That is, it is not derived from the best-response
function.
15
When the price is smaller than the marginal cost, the firm with the greatest profit (smaller loss) will
be the one that produced the smaller quantity. In this case, quantities would tend to decrease
systematically until once again the price exceeds the marginal cost. After that, the dynamics of the
game will approach once more the marginal cost.
16
It has to be mentioned that, in a later paper (2002) - referenced in the introduction -; authors had
found no significant differences in an experimental level between equations 3 and 4. So, the
incorporation of inertia results innocuous to guarantee the convergence or the approximation to the
Nash-Cournot Equilibrium.

III. The experiment; its parameters, and the hypotheses of behavior.

The experiment was carried out with students from Microeconomics I and Mathematics for
Economists courses from the Facultad de Ciencias Econmicas de la Universidad de
Buenos Aires (School of Economics, University of Buenos Aires) Argentina, using the
OLIGOP software created by the Economic Science Laboratory of Arizona University.17 The
participants had an average age of 22, being all of them students in their first professional
year of the Economics program. All in all, the experiment was carried out in a group of 112
volunteers divided in 16 groups, each one consisting of seven randomly selected members.
It should be noted that most of them ignored the existence of Cournots model, and those
who knew it, had only read about it in very broad ways in an introductory course. Each
participant was presented the choice of playing in the OLIGOP simulation program, knowing
that he/she was going to receive a monetary amount based on a scale of 1 Argentine peso
for every 1000 monetary units obtained in the game.
The 16 groups distributed in pairs played during 8 Saturdays between June and September
of 2004 in the computer lab. The 14 participants of each pair were instructed together as to
the game and which commands they were to use. In every case, the use of intensive
mathematical formalisms was avoided during the instruction process. None of the
participants was told exactly how long the game was going to last; but they were told that the
maximal duration would not exceed 35 stages.18 Moreover, it was pressed upon them that
any type of communication amongst them during the course of the game would be banned.
Once the rules of the game and the commands used were understood, a simple test of
understanding was carried out in each of the 8 sessions. Of the 14 participants involved in
each session, 7 of them started playing while the other 7 waited their turns outside the lab.
Following the assumptions of Cournots generalized model, the seven participantscompetitors that made up each market (each group) knew the demand function they were
facing, as well as their own costs function and the one of their opponents.
The information that was available to each competitor in relation to the quantities sold by
their opponents was the following: In show groups, each participant knew the individual
quantities sold by their opponents in the previous period, while in the no show groups they
only knew the aggregated quantities.19 Out of the 16 groups studied, half took the show
category and the other half the no show category. 20
Each stage of the game ended when all the participants determined their output.21 After that,
the next stage began, in which each participant knew their own profits made in the previous
play the price and quantities (the latter depending on the group category in question; that is
show or no show).
The OLIGOP software includes a personal calculator for each participant that suggests him
or her, the optimum quantities to be sold given the participants subjective conjecture about
the opponents output in stage t.
The inverse demand function that all the groups faced was:
17

The software animates Cournots model for a group of up to 7 participants. Each one of them plays
simultaneously competing for quantities during a limited number of times. The duration of the game as
well as the parameters used in the simulation is discretional for the researcher.
18
Note that the terminal condition was finite but uncertain for the agents.
19
Show groups had more information concerning their opponents strategies available to them.
20
In each of the 8 sessions 14 participants entered the lab, of which 7 would be in the show category
and 7 in the no show. This division was only known to the researcher; that is, participants found out
once the game had started.
21
The time limit to decide the quantities was of 60 seconds per stage. In case the participant-firm did
not change his o her quantities during this time, the program automatically considered the quantity
produced (sold) in the previous period.

7.

P(Qt ) = max [100 Qt , 0] ; being Qt = qit the total quantity sold by the group of seven
i =1

firms that made up each group (market).

The cost structure was: C (qit ) = 32qit for the show groups and C (qit ) = 30qit for the no
show groups respectively. The differentiation of marginal costs was fundamentally due to
the fact that the people leaving the lab often exchanged words with those entering to the
room.22
The duration of the game was of 32 periods for the eight groups in the show category, and
of 30 for the no show category. It is worth informing that in some groups of both categories
the duration of the game was changed with respect to the pre-arranged one. The reason for
this lied in the above paragraph23
According to the parameters that were inputted in the program, the Nash-Cournot subgame
perfect equilibriums are:
7

8.

Qt = qit = 59.5 qit = 8.5 , for groups in the show category; and

9. Qt =

i =1
7

q
i =1

it

= 61.25 qit = 8.75 , for those in the no show. The individual profits each

participant would receive (given the decided scale) compatible with SPE were 7.2/100
Argentine pesos for show and 7.6/100 for no show.24 In all cases participants started off
with no monetary endowment; and those who ended up with a negative balance after the end
of the game wouldnt have to pay anything.
In accordance with the results obtained by Huck, S.; Normann, H., and Oechssler, J. (1998) (1999), the hypotheses considered will be the following:
groups "show"

Qt observed
H1 : mean Nash
Cournot
Qt

for : t [1, T ] t T ,T .
3

max t 1
i ,t 1

H 2 : q jt = prox q

Qt obseved
> mean Nash
Cournot
Qt

groups "no show"

1 6

" groups show " q jt = prox 35 qi ,t 1

2 i =1
i j

"groups no show " for : j i; t [1, T ] t T , T

3

H 2 : The information regarding the mean quantity produced by the opponents (of common
knowledge to both groups) would prove irrelevant.
22

Once again, recall that two groups took part in each Saturday session.
Formally, in three groups from the show category and in three from the no show, the number of
stages differs from 32 and 30 periods respectively.
24
These profits refer to the SPE at each stage.
23

The first hypothesis holds that the ratio between the observed aggregate quantities and
those predicted by the Nash-Cournot equilibrium must be, in average, higher in those groups
with greater amounts of information about the opponents.25
The second one states that the dynamic adjustment of individual quantities must approach to
the imitation of the best in the groups with greater amounts of information, and must
approach to the BRF (myopic but with no inertia) in the groups with smaller amounts of
information. Related to this, an ad hoc hypothesis is added that states that information of the
mean quantity produced by the opponents should prove irrelevant to the adjustment
process.26

25

This hypothesis is presented both for the total of periods played as for the two last thirds of the
game.
26
The periods studied are the same as those of hypothesis 1.

IV. Experiment Results

Table 1 below shows the ratios between observed aggregated quantities and aggregated
quantities predicted by the Nash-Cournot equilibrium for different lapses of the game. (Table
1.1 included in the appendix contains detailed information for each market).
Table 1:

Groups1) and Periods studied:

1)
2)

2)
Qtobserved
Statistical: Nash Cournot ; Mann Whitney Z stat
&
Qt
(P-value)
Mean (Deviation)

Show; t [1, T ]

1.11
(0.25)

No Show; t [1, T ]

1.28
(0.6)

Show; t T , T
3

1.10
(0.18)

No Show; t T , T
3

1.13
(0.32)

1
Show; t 1, T
3

1.14
(0.35)

1
No Show; t 1, T
3

1.58
(0.87)

1 2
Show; t T , T
3 3

1.08
(0.18)

1 2
No Show; t T , T
3 3

1.17
(0.36)

Show; t T , T
3

1.11
(0.18)

No Show; t T , T
3

1.08
(0.26)

-1.009 *
(0.3128)

-1.091*
(0.2754)

2.86 **
(0.0038)

0.726 *
(0.468)

-2.242 **
(0.024)

Each group includes the 8 markets in the experiment.

The null hypothesis contrasted through this non parametrical test is that the mean value

Qtobserved
of Nash Cournot is the same for both groups.
Qt
(*) Under 5% significance cannot be rejected the hypothesis of equal means.
(**) Under 5% significance cannot be accepted the hypothesis of equal means

 Qt observed
Note that in contrast to the first proposed hypothesis, the rate Nash Cournot is not
Qt

significantly different in t [1, T ] t T , T between show and No-Show groups. 27 28

3

Graphics 1 and 2 show the differences respect to the Nash Cournot equilibrium, in the first
and last stages of the game for all of the 16 experimental markets:

(Q/Nash)-1

G1: Difference respect to the NashCournot equilibrium "Show" groups

0,50
0,40
0,30
0,20
0,10
0,00
-0,10
-0,20
-0,30
-0,40

First Third [1,1/3T]

Last Third (2/3T,T]

(Q/Nash)-1

G2: Difference respect to the NashCournot equilibrium groups "no - show"

2,40
2,10
1,80
1,50
1,20
0,90
0,60
0,30
0,00
-0,30

First Third [1,1/3T]

Last Third (2/3T,T]

27

Note that if it was this way, the ratio would have been larger for the no-show groups.
The only exception that was found (consistent with the results obtained by H-N.-O.) appeared in the
last period of the game. About this, the reason of that result responded punctually to the group 1s
behavior of the show category. This group began producing significantly low quantities and
assimilable to the one of a cooperative structure. After a defection, the quantities triggered to a market
of Walrasian characteristics.
28

10

Note that in concordance to Fajfar, P. (2004), the markets performance in the games
terminal steps happen to be closer to the subgame perfect equilibrium with independence to
the level of information.29

For studying the dynamic adjustment in individuals quantities, the following model was
estimated:
6

max t-1
i ,t 1

10. qit qi ,t 1 = 0, i + 1 ( BRFi ,t 1 qi ,t 1 ) + 2 (q

qi ,t 1 ) + 3 (

qit qi ,t 1 = 0, i + 1 (lbest ) + 2 (lsim) + 3 (lme dim) .

q
j =1

j ,t 1

qi ,t 1 ) , or:

The lbest variable indicates that adjustments dynamics in t , t 1 for a firm i can be explained
in terms of the difference between the optimal quantities that this firm had to have produced
and the quantity that firm effectively produced in t 130.
The variable lsim expresses that the dynamic adjustment in t , t 1 of the company is
explained by the difference between the quantity produced by the company with larger profit
in t 1 and the quantity that i have effectively produced in t 1 . 31
Finally, Imedim variable supports that the dynamic adjustment in t , t 1 for a firm i is
explained by the difference between the mean quantity produced by its rivals in t 1 and the
effectively produced quantity i in t 1 32.
Tables 2 and 3 show the estimation results by the fixed effects method in OLS. The first one
details the values adopted by the coefficients in the 8 markets for both groups (show and noshow) for the total played periods. The second presents the same data for the last two thirds
of the game.

29

Only 2 of the 16 groups experienced markets (pertaining to the category "show") displayed
discrepancies.
30
Best myopic response without inertia
31
Note that this variable is solely relevant for show groups. .
32
This variable, which is common for both groups, its incorporated as a product of the ad hoc
hypothesis proposed by the author. It must be added that was included, also, in HN.O.

11

Table 2; OLS- fixed effects, Show & No-Show t [1, T ] :

Parameters
Groups
and periods studied:

Constant

R2

Show; t [1, T ] :
Market 1
Market 2
Market 3
Market 4
Market 5
Market 6
Market 7
Market 8

0.034
(0.032)
P-Value=0.29
0.256
(0.052)
P-Value=0.00
0.234
(0.07)
P-Value=0.001
0.105
(0.057)
P-Value=0.06
0.34
(0.073)
P-Value=0.00
0.17
(0.105)
P-Value=0.105
0.163
(0.101)
P-Value=0.108
0.022
(0.10)
P-Value=0.826

0.09
0.122
-0.12
(0.035)
(0.051)
(0.26)
P-Value=0.011 P-Value=0.018 P-Value=0.64
0.065
0.49
0.076
(0.038)
(0.064)
(0.3)
P-Value=0.089 P-Value=0.00
P-Value=0.8
0.095
0.337
-0.063
(0.06)
(0.06)
(0.38)
P-Value=0.114 P-Value=0.00 P-Value=0.87
0.088
0.45
0.187
(0.05)
(0.3)
(0.07)
P-Value=0.108 P-Value=0.00 P-Value=0.54
0.128
0.018
1.44
(0.041)
(0.43)
(0.05)
P-Value=0.66 P-Value=0.022 P-Value=0.001
0.036
0.49
1.22
(0.072)
(0.084)
(0.56)
P-Value=0.672 P-Value=0.00 P-Value=0.031
0.054
0.52
0.56
(0.07)
(0.09)
(0.54)
P-Value=0.574 P-Value=0.00 P-Value=0.302
0.277
0.33
-1.00
(0.07)
(0.07)
(0.58)
P-Value=0.00 P-Value=0.00 P-Value=0.087

0.51
(0.086)
P-Value=0.00
0.29
(0.043)
P-Value=0.00
0.226
(0.06)
P-Value=0.00
0.45
(0.07)
P-Value=0.00
0.44
(0.06)
P-Value=0.00
0.24
(0.06)
P-Value=0.00
0.26
(0.1)
P-Value=0.009
0.42
(0.07)
P-Value=0.00

0.473
(0.09)
P-Value=0.00
0.48
(0.064)
P-Value=0.00
0.413
(0.076)
P-Value=0.00
0.44
(0.08)
P-Value=0.00
0.31
(0.08)
P-Value=0.00
0.33
(0.08)
P-Value=.00
0.253
(0.1)
P-Value=0.011
0.36
(0.08)
P-Value=0.00

0.15
0.45
0.42
0.35
0.28
0.36
0.38
0.39

No Show; t [1, T ] :
Market 1
Market 2
Market 3
Market 4
Market 5
Market 6
Market 7
Market 8

1.79
(0.65)
P-Value=0.007
-1.197
(0.17)
P-Value=0.261
0.97
(0.5)
P-Value=0.056
1.75
(0.613)
P-Value=0.005
1.92
(0.46)
P-Value=0.00
0.5
(0.6)
P-Value=0.406
4.5
(1.92)
P-Value=0.02
0.86
(0.59)
P-Value=0.148

0.5
0.41
0.32
0.46
0.37
0.29
0.25
0.4

12

1
3

Table 3; OLS- fixed effects, Show & No-Show t T , T :

Parameters
Groups
and periods studied:

Constant

R2

0.0526
(0.08)

0.108
(0.047)

0.098
(0.063)

0.102
(0.48)

0.18

Show; t 1 T , T :
3

Market 1

P-Value=0.519 P-Value=0.025 P-Value=0.125

Market 2
Market 3
Market 4

0.345
(0.66)

0.054
(0.046)

0.489
(0.08)

0.325
(0.388)

P-Value=0.00

P-Value=0.243

P-Value=0.00

P-Value=0.405

0.26
(0.06)

0.0005
(0.0618)

0.47
(0.08)

0.17
(0.33)

P-Value=0.00

P-Value=0.99

P-Value=0.00

P-Value=0.604

0.15
(0.06)

-0.007
(0.06)

0.513
(0.08)

0.39
(0.34)

P-Value=0.00

P-Value=0.248

0.463
(0.07)

0.858
(0.39)

P-Value=0.00

P-Value=0.029

0.448
(0.8)

0.52
(0.61)

P-Value=0.00

P-Value=0.394

P-Value=0.015 P-Value=0.913

Market 5

0.21
(0.08)

0.019
(0.044)

P-Value=0.008 P-Value=0.661

Market 6

0.023
(0.13)

0.16
(0.099)

P-Value=0.859 P-Value=0.116

Market 7
Market 8

P-Value=0.83

0.26
(0.07)

0.033
(0.07)

0.62
(0.09)

0.366
(0.38)

P-Value=0.001

P-Value=0.64

P-Value=0.00

P-Value=0.347

0.28
(0.08)

0.071
(0.053)

0.248
(0.08)

0.26
(0.44)

P-Value=0.002 P-Value=0.184 P-Value=0.002

0.52

0.39

0.32

0.38

0.36

0.48

0.37

P-Value=0.56

No Show; t 1 T , T :
3

Market 1
Market 2
Market 3

0.63
(0.11)

0.46
(0.11)

1.77
(0.82)

P-Value=0.00

P-Value=0.00

P-Value=0.033

0.22
(0.049)

0.435
(0.07)

-0.052
(0.14)

P-Value=0.00

P-Value=0.00

P-Value=0.708

0.295
(0.04)

0.173
(0.07)

0.14
(0.26)

P-Value=0.00

Market 4
Market 5
Market 6
Market 7
Market 8

0.482
(0.09)

1.255
(0.46)

P-Value=0.00

P-Value=0.00

P-Value=0.008

0.16
(0.06)

0.36
(0.07)

0.52
(0.31)

P-Value=0.008

P-Value=0.00

P-Value=0.101

0.23
(0.04)

0.29
(0.05)

-0.275
(0.18)

P-Value=0.00

P-Value=0.00

P-Value=0.133

0.5
(0.14)

0.235
(0.13)

6.27
(1.98)

0.29
(0.05)
P-Value=0.00

0.35

0.32

P-Value=0.014 P-Value=0.588

0.473
(0.08)

P-Value=0.00

0.55

0.49

0.25

0.38

0.37

P-Value=0.076 P-Value=0.002

0.074
(0.046)

-0.071
(0.19)

0.26

P-Value=0.112 P-Value=0.708

13

In the case of groups with smaller amounts of information about rivals, no show groups, the
results show that for the total of periods played, t [1, T ] , the dynamics through which firms
adjust their individual quantities is explained by both variables. That is to say, firms observe
both the optimum quantity they should have produced in t 1 and the mean quantity
produced by their opponents. Here, two points must be made clear. First, in every case the
sign of the estimated coefficients was the one expected, and estimated coefficients were
significant at 1%. Second, the Wald test did not allow us to reject the hypothesis of equality

1
3

of the coefficients for markets 1, 4, 5, 6, 7 and 8.33 Regarding the adjustment in t T , T ,

the coefficients tend once again to be globally significant but the relative weight of the best
myopic response (without inertia) grew bigger.34 Thus, coefficient 1 was significant at 1% in
the 8 markets included in the experiment; while 3 was significant in six out of eight markets
at 1% and in one at 7.6%.
In the case of groups with greater amounts of information about the opponents, show
groups, the results tended to be somewhat ambiguous in reference to the best myopic
response (without inertia), but exhaustive in terms of the hypothesis of imitation.
Nevertheless, the behavioral pattern that best explains the dynamic of adjustment is the one
that consists in following the mean.
For the total of periods played, that is, t [1, T ] , the most explanatory variable is the
following the mean, for which coefficients adopted the expected sign and were significant at
2%. Following right behind, adjustment regarding the best myopic response (without inertia)
was significant in four of the eight markets under 1% and 6% of significance respectively.35
Finally, the behavior of imitation of the best was only significant in three markets at 1% and
9% of significance.

1
3

When analyzing the dynamics in t T , T , results stress once again the feature of
following the mean36, but with the following considerations: a) Adjustment regarding the best
myopic response (without inertia) turns to be significant in six markets out of eight at 1%, that
is, its explanatory power increases. b) Adjustment regarding imitation of the best turns to be
an exception to the rule. Its explanatory power is limited to just one of the eight markets
tested in the experiment. In this last one, a mono-dependent behavior is observed.

33
34

The mentioned hypothesis states that

1 = 3 , versus the alternative 1 3 .

Notwithstanding, note that there is no case in which the dynamic adjustments was explained solely
by one variable.
35
In three markets it was significant at 1% and in one at 6%.
36
Coefficients turn to be significant at 1% in 7 out of the 8 markets.

14

V. Conclusions
In the evolutionary approach of game theory, agents try to maximize their relative payments
rather than the absolute ones. This fact entails that many standardized results in economics
are subject to a restate37. In this aspect, Vega Redondo (1997) demonstrates that the
performance of an oligopolic market with Cournotians characteristics may converge to the
Walrasian equilibrium, when the companies have enough information about the quantities
produced by their competitors. The Huck, S.; Normann, H., and Oechssler, J. (1998), &
(1999) experimental results happened to be consequent to the Vega Redondos theoretical
model, in a context where the companies cant adjust the production in all the periods.
In this paper a reproduction of the H.-N.-O.'s experiment was attempted, in a scenario where
the companies can adjust their production in all periods38. After 16 repetitions with different
groups, the results obtained substantially differed from the H.-N.-O.s ones. In the first place,
the quotient between the mean aggregated quantity produced by the companies and the
Nash-Cournot equilibrium were not significantly different in groups show and no show 39.
Respect to this last fact, notice that in case there was a difference, the no-show groups
would have adopted larger levels40. In second place, the dynamic adjustment of individual
quantities produced by the companies in the show groups was far from being explained by
the hypothesis of imitation of the best.
As a final note, the main conclusion obtained from this paper is that, experimentally, the
companies tend unfailingly to observe the mean behavior of the market41. In addition to this
fact, the strategies usually adopted during the game show to be a mix between the best
myopic answer (with no inertia) and the following the mean one.
Acknowledgements:
1. To Maria Teresa Casparri, for the financial support surrounding the incentives in the
game; as well as for her daily stimulus on my research.
2. To Nicholas Aguelakakis, for the unconditional collaboration in the making of this
work.
3. To Luis Trajtemberg, for his suggestions regarding the econometrical model used.
4. To Gonzalo Wolfenson for processing the data.

37

A clear example of this can be found in the traditional ultimatum game.

In formal terms, the fact that firms cant adjust their production in every period is due to the
fulfillment of equation 4. This behavior hypothesis is incorporated into several theoretical and
experimental essays to enable Nash-Cournot equilibriums within limited rationality contexts.
39
Show groups had more information concerning the quantities produced by their opponents
available to them.
40
Related to this fact, the markets performance in the final stages of the game was, independently to
the level of information, nearer to a Nash-Cournot equilibrium.
41
This fact has no relation with the level of information regarding the opponents.
38

15

References
Als-Ferrer; C. (2004), Cournot versus Walras in dynamic oligopolies with memory,
International Journal of Industrial Organization Vol. 22 (2004) pages 193-217.
Fajfar, P. (2004), Aprendizaje en un juego repetido de Cournot: Un experimento de
laboratorio. Asociacin Argentina de Economa Poltica, document n 1896.
Fouraker, L. Siegel, S. (1963), Bargaining Behavior McGraw Hill, New York.
Huck, S.; Normann, H.; Oechssler, J. (1998), Does information about competitors actions
increase or decrease competition in experimental oligopoly markets? Department of
Economics, Humboldt University, Berlin.
Huck, S.; Normann, H.; Oechssler, J. (1999), Learning in Cournot oligopoly An
experiment, The Economic Journal, vol.109 March 1999; Department of Economics,
Humboldt University, Berlin (1997).
Huck, S.; Normann, H.; Oechssler, J. (2002), Stability of the Cournot process experimental
evidence, International Journal of Game Theory Vol. 31 pages 123-136.
Huck, S.; Normann, H.; Oechssler, J. (2004) Two are few and four are many: number effects
in experimental oligopolies, Journal of Economic Behavior & Organization Vol. 53 (2004)
pages 435-446.
Rassenti, S.; Reynolds, S.; Smith, V.; Szidarovszky, F. (2000), Adaptation and convergence
of behavior in repeated experimental Cournot games, Journal of Economic Behavior &
Organization Vol. 41 (2000) pages 117-146.
Reichmann, Thomas. (2002), Cournot oder Walras? Agentenbasiertes Lernern, Rationalitt
und langfristige Resultate in Oligopspielen, Discussionpapier Nr 261, Universitt Hannover.
Schipper, B. (2004), Imitators and Optimizers in Cournot Oligopoly, Department of
Economics, University of Bonn.
Stigler, G. (1964), A Theory of Oligopoly, Journal of Political Economy 12, pages 44-61.
Szidarovszky, F.; Rassenti, S.; Yen, J., (1994) The stability of the Cournot solution under
adaptive expectation. International Review of Economic and Finance 3 (2).
Vega-Redondo (1997), The Evolution of Walrasian Behavior, Econometrica, vol. 65 pages
375-384.

16

Appendix:
Table 1.1
Experiment1

Total Sample2

First Third3

Second Third4

Last Third5

Mean

Q/Nash

Deviation
Mean

Mean

Q/Nash

Deviation
Mean

Mean

Q/Nash

Deviation
Mean

Mean

Q/Nash

Deviation
Mean

1_29

70.97

1.16

0.31

72.70

1.19

0.31

73.30

1.20

0.41

66.44

1.08

0.15

2_30

60.17

0.98

0.12

58.90

0.96

0.18

61.50

1.00

0.08

60.10

0.98

0.08

3_29

71.59

1.17

0.34

89.50

1.46

0.37

63.70

1.04

0.19

60.44

0.99

0.11

4_29

73.14

1.19

0.32

83.20

1.36

0.40

69.40

1.13

0.28

66.11

1.08

0.07

5_30

72.26

1.18

0.31

82.90

1.35

0.42

67.60

1.10

0.10

66.30

1.08

0.17

6_30

73.86

1.21

0.44

99.50

1.62

0.48

64.80

1.06

0.10

57.30

0.94

0.08

7_30

134.60

2.20

0.41

197.00

3.22

0.20

112.70

1.84

0.19

93.30

1.52

0.31

8_30

70.93

1.16

0.48

91.60

1.50

0.59

61.30

1.00

0.10

59.90

0.98

0.10

1_31

59.68

1.00

0.30

41.50

0.70

0.24

59.00

0.99

0.08

76.82

1.29

0.17

2_27

64.26

1.08

0.14

64.10

1.08

0.13

65.10

1.09

0.10

63.29

1.06

0.20

3_31

63.26

1.06

0.23

68.40

1.15

0.32

65.00

1.09

0.15

57.00

0.96

0.15

4_32

64.75

1.09

0.14

66.40

1.12

0.15

59.72

1.00

0.12

68.27

1.14

0.11

5_32

67.68

1.14

0.10

69.60

1.17

0.14

65.80

1.11

0.08

67.66

1.14

0.06

6_32

74.78

1.26

0.23

83.50

1.40

0.19

71.50

1.20

0.31

70.25

1.18

0.15

7_32

69.15

1.16

0.26

83.20

1.40

0.30

65.70

1.10

0.13

60.33

1.01

0.16

8_32

64.93

1.09

0.27

68.20

1.14

0.44

62.90

1.06

0.15

63.91

1.07

0.11

No Show

Show

The number after the dash in each market indicates the number of periods played.

Period t 1, T

1 2
4
Period t T , T
3 3
2

5
Period t T , T
3

Period t 1, T
3

17