Price competition, level-k theory and communication
Author
Summary, in English
This paper analyzes communication in a price competition game using the level-$k$ theory of bounded rationality. The level-k analysis predicts prices to be higher with communication than without. Our experimental evidence lends support to the view that communication affects subjects in a way that is compatible with the level-k model, indicating that people lie in order to fool other players that they believe do less thinking. Moreover, the results indicate that the predictive power of the level-k model does crucially depend on the possibility for high level players to form homogenous beliefs about the behavior of the level-0 players
Publishing year
2008
Language
English
Pages
1-15
Publication/Series
Economics Bulletin
Volume
3
Issue
66
Full text
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Document type
Journal article
Publisher
Economics Bulletin
Topic
- Economics
Status
Published
ISBN/ISSN/Other
- ISSN: 1545-2921