Understanding Entry Games using Laboratory Experiments

This laboratory experiment examines whether individuals follow Nash equilibrium predictions in the two-player one-shot complete information entry game of Bresnahan and Reiss (1990) while varying payoff parameters. This entry game is regularly used in empirical industrial organization, but has not been examined experimentally. We find that subjects regularly play dominant strategies (98.2% on average), however there are violations of iterated dominance (13.6% on average). While Nash predictions are silent on coordination, we find more coordination in regions of multiple equilibrium when there are payoff asymmetries (67.3% on average) compared to payoff symmetry (38.4% on average). We also find behavior is monotonic with respect to own and opponent’s payoffs