Deterrence in sequential contests: An experimental study

Abstract

Many contests are sequential, with leaders making decisions first, and followers observing those decisions and responding to them. The theory predicts that, unlike in standard Stackelberg duopoly settings, in two-player sequential contests the leader has no strategic advantage. However, this is no longer the case for sequential contests with multiple leaders. Applications include political competition with two established parties and a possibility for a third party entry, or R&D competition with multiple incumbents and a new entrant. We conduct a lab experiment testing the equilibrium predictions for two- and three-player sequential contests, with the corresponding simultaneous contests as controls. Consistent with theory, we find evidence of entry deterrence by leaders in the three-player sequential contest, but not in the two-player version.