Title: Non-Stackelberg Outcomes in Stackelberg Duopoly Experiments: Parsimonious Explanation Based on Inequality Aversion
Reference Number: 1154
Publication Date: March 2006
JEL Classifcation: C91; D63
Author(s):

Sau-Him Paul Lau
The University of Hong Kong

Felix Leung
Hong Kong Institute of Economics and Business Strategy

Abstract:

In the Stackelberg duopoly experiments in Huck et al. (2001), the followers behave less timidly than predicted by conventional theory and the leaders act less aggressively than predicted. We provide a parsimonious explanation to these anomalies by simplifying the model of Fehr and Schmidt (1999) in two directions — there is no advantageous inequality aversion and all players with non-standard preferences have the same degree of disadvantageous inequality aversion. Maximum likelihood procedures show that the predictions of this model are consistent with the data in Huck et al. (2001), and that more than a third of the players have high degree of disadvantageous inequality aversion which is statistically different from zero.

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Key words: Stackelberg duopoly experiments; non-Stackelberg outcomes; inequality aversion; maximum likelihood estimates

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Last modified: 01/25/2007