Revision and Cooperation: Evidence from Cournot Duopoly Experiments

This paper presents experimental evidence concerned with behavior in Cournot duopolies where players indulge in a form of pre-play communication termed as revision phase before playing the “one-shot” game. During this revision phase individuals announce their tentative quantities that are publicly observed and revisions are costless. The payoffs are determined only by the quantities selected at the end in a real time revision game while in a Poisson revision game, opportunities to revise arrive according to a synchronous Poisson process and the tentative quantity corresponding to the last revision opportunity are implemented. Contrasting results emerge. While real time revision of quantities results in choices that are more competitive than the static Cournot-Nash, significantly lower quantities are implemented in the Poisson revision games. This shows that partial cooperation can be sustained even when individuals interact only once. The dynamics of revisions gives rise to the following two observations. First, while a real time revision game is characterized only by late upward quantity adjustments, the Poisson revision games are characterized primarily by initial downward adjustments and sometimes also by the late upward revisions. Second, the quantity adjustments during the initial period of the revision phase show that individuals imitate their opponent’s desired quantity choices, whereas, behavior towards the end of the revision phase can be explained by the best response to the competitor’s desired output. JEL Classification Numbers: C72, C92, D21, D43, L13