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Location Experiments

working paper E99-23

Tony Dziepak

Department of Economics
Virginia Polytechnic Institute and State University
Dziepak "at" vt "dot" edu

Abstract:

This paper presents results of experiments on simple Hotelling location models. Results are compared to pure- and mixed-strategy Nash equilibria for the simple location problem with two to six sellers. For groups of two firms, there is clear evidence of communication for the purpose of influencing the other seller as part of a multiperiod strategy. However, whether the motivation for this signaling is to coordinate on a fair outcome or to deceive is unclear. For groups of three firms, there is evidence of risk aversion as players avoid riskier central locations. For groups of four and five firms, results do not readily attain the unique pure-strategy Nash equilibrium due to a previously unexplored coordination problem. In the four-player groups, players choose a combination of pure-strategy focal points and the mixed strategy support; however, players also choose the center of the market, which cannot be explained by theory. In the six-player case, there are two equilibria in pure strategies, providing an even more complex coordination problem. The distributions of strategies vary systematically as the number of seller increases in a manner consistent with Nash predictions.

Experimental instructions
Screen shots of the program: Enter location choice | Observe results.

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