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Price competition, level-k theory and communication

Wengström, Erik LU (2008) In Economics Bulletin 3(66). p.1-15
Abstract
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
Please use this url to cite or link to this publication:
author
publishing date
type
Contribution to journal
publication status
published
subject
in
Economics Bulletin
volume
3
issue
66
pages
1 - 15
publisher
Economics Bulletin
external identifiers
  • scopus:55449126351
ISSN
1545-2921
language
English
LU publication?
no
id
f0692f51-b167-4d1f-a43b-41a9c853dfd5 (old id 1482653)
date added to LUP
2016-04-04 13:58:09
date last changed
2025-10-14 09:02:24
@article{f0692f51-b167-4d1f-a43b-41a9c853dfd5,
  abstract     = {{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}},
  author       = {{Wengström, Erik}},
  issn         = {{1545-2921}},
  language     = {{eng}},
  number       = {{66}},
  pages        = {{1--15}},
  publisher    = {{Economics Bulletin}},
  series       = {{Economics Bulletin}},
  title        = {{Price competition, level-k theory and communication}},
  url          = {{https://lup.lub.lu.se/search/files/6248776/1494610.pdf}},
  volume       = {{3}},
  year         = {{2008}},
}