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Ambiguous Information and Market Entry: An Experimental Study

Author

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  • Brandts, Jordi
  • Yao, Lan
Abstract
We study experimentally how entry into a market with uncertain capacity is affected by the type of information potential entrants have available. Our focus is on behavior in a two-market entry game. In the risky information market there are two possible market capacities, both known to occur with probability 1/2. In the ambiguous information market the two possible market capacities effectively occur with probability 1/2 but participants are only told that there is uncertainty about capacities. We find that average entry is higher under ambiguous information than under risky information. To control for comparison effects and the effects of strategic interaction in the two market environment we also study a two-lottery individual decision problem and one market entry games with ambiguous and risky information. For these two cases the experimental results show no difference between information conditions. Our results are consistent with the notion that complex strategic interaction leads to higher market entry under ambiguous information.

Suggested Citation

  • Brandts, Jordi & Yao, Lan, 2010. "Ambiguous Information and Market Entry: An Experimental Study," MPRA Paper 25276, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:25276
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    References listed on IDEAS

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    Cited by:

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    2. Artinger, Sabrina, 2013. "Demand uncertainty in skill-based competition," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79962, Verein für Socialpolitik / German Economic Association.
    3. Foster, Joshua & Deck, Cary & Farmer, Amy, 2019. "Behavioral demand effects when buyers anticipate inventory shortages," European Journal of Operational Research, Elsevier, vol. 276(1), pages 217-234.
    4. Artinger, Sabrina & Schade, Christian, 2013. "Girls will be Girls: An Experimental Study on Female Entrepreneurship," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 146511, Humboldt University Berlin, Department of Agricultural Economics.

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    More about this item

    Keywords

    Market entry games; Experiment; Risk; Ambiguity.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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