Chapter 18 The Classical Experiments on Cournot Oligopoly

Abstract

Publisher Summary The oligopolistic market used in Fouraker and Siegel's experiments is as simple as it can be, the purpose – comparing the results of two treatments – is clearly stated, while the problems confronted and the solutions applied are not different from today's. It is instructive to note how in a matter of a few years, simplification is preferred to realism. In Fouraker and Siegel, firms are identical one-person onedecision units, and the inverse demand function is linear in current quantities. Clearly, the purpose of Fouraker and Siegel's experiments was to study human behavior, not to decipher the complexities of oligopolistic markets or the behavior of complex organizations. Fouraker and Siegel view oligopolies as an example of human conflict between cooperation and defection. Their goal is to infer useful generalizations from the experiments of the effects of information conditions on the resolution of this conflict. While Fouraker and Siegel also consider Bertrand competition, we focus here on their symmetric Cournot games, with subjects – randomly and anonymously matched at the start of the experiment – deciding the amount of output they bring to the market. The market is characterized by a linear demand function, while marginal costs are zero at all output levels, and there are no fixed costs.