Testing oligopoly theory in the Lab

Abstract

Previous experimental results are reviewed to address the extent to which oligopolistic equilibria are good predictors of behavior observed in labe ratory experiments with human agents. Although the theory is unrealistically demanding with respect to the agents7 informational and rational endowments, experimental results obtained in more realistic settings with subjects using trial-anderror decision mechanisms tend to confirm predictions of simple symmetric theoretical models. However, in the presence of more complex and/or asymmetric environments, systematic deviations are observed between theoretical predictions and experimental results. Certainly, more effort should be made by al1 parties involved to build a bridge between theoretical predictions and the behavior ob-served in the lab in order to assist both the theorist and the policy maker; the former to enrich theoretical models including the behavioral factors identified by experimentalists and the latter to gain insights on the strengths and weaknesses of theory in predicting human behavior in the marketplace