Noisy leadership: An experimental approach

We examine the strategic behavior of leaders and followers in sequential duopoly experimentsin which followers either perfectly observe the leaders’ actions or else observe nothing. Ourexperiments show that consistent with the theory, leaders enjoy a greater first-mover advantagewhen followers observe their actions with higher probability. However, the results also showthat (i) leaders do not fully exploit their first-mover advantage, (ii) when informed, followerstend to overreact slightly (i.e., choose quantities above their best-response to the leaders’ quantities),and (iii) when uninformed, followers try to predict leaders’ quantities and react optimally.This suggests that followers view the symmetric Cournot outcome as “fair” and whenever theyobserve leaders who are trying to exploit their first-mover advantage, they “punish” them byoverreacting. Such punishments in turn induce leaders to behave more softly than the theorypredicts.