Portal Red Investigadores de Economía

Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS)

We offer theoretical and experimental evidence suggesting that social competition has a first order effect in low-information Cournot markets. Using data from a stylized laboratory experiment, we show that firms use average market profits as a reference point to assess their relative performance following a simple but powerful logic: earnings above the market reinforces their current choice; scoring below the market prompts dissatisfaction and experimentation with new quantities. This win-stay, lose-shift heuristics converges to the competitive outcome because the Walrasian quantity is the unique action that never yields profits below the average profits in the market. This prediction is neatly confirmed in the lab. Social competition leads to Walrasian quantities even when firms do not receive information about the most successful rival, and imitation is not possible.

Social Competition in Low-Information Cournot Markets