EXPERIMENTAL EVIDENCE OF A SUNK-COST PARADOX: A STUDY OF PRICING BEHAVIOR IN BERTRAND-EDGEWORTH DUOPOLY

• 成果类型: Article
• 署名作者: Buchheit, Steve; Feltovich, Nick
• 署名单位: University of Aberdeen; Texas Tech University System; Texas Tech University
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/j.1468-2354.2011.00630.x
• 发表日期: 2011
• 页码: 317-347
• 关键词: competition; oligopoly; auctions; equilibrium; induction; imitation; DECISION; biases; entry

摘要

We experimentally test the effect of sunk costs on decision making. In the experiment, subjects play the role of price-setting duopolists. Both firms have identical costs, including an exogenous sunk cost that varies across sessions over six different values. We observe that the sunk cost has a U-shaped effect: From low to medium levels, average prices decrease, but from medium to high levels, average prices increase. This effect, which is consistent with loss avoidance, develops quickly and persists throughout the game. A follow-up experiment confirms the main results of the original experiment.