Essays on Experimental Coordination Games

Abstract

The research reported in this dissertation explores the coordination problem faced by economic agents in various strategic environments. The first chapter provides an experimental test of a theory of collusion in the presence of price-matching guarantees and thus throws light on the equilibrium selection problem embedded in this market game. The experiment yields important empirical information regarding the competitive nature of these low-price guarantees in the laboratory.In the second chapter, more general theoretical models are developed that undermine any collusive equilibrium in the presence of price-matching guarantees. Although the theory predicts that the competitive price should emerge in equilibrium in all these models, systematic discrepancy between the theoretical prediction and the observed behavior is found.In the third chapter, a well-known paradox is tested in the laboratory. Braess paradox (Braess, 1968) consists of showing that, in equilibrium, adding a new link that connects two routes running between a common origin and common destination may raise the travel cost for each network user. The experiment is designed to study whether the paradox is behaviorally realized in the critical minimal simulated traffic network. Results reject the hypothesis that the paradox is of marginal value and its force, if at all evident, diminishes with experience.In the last chapter, using controlled laboratory experiments, I study how the problem of coordination failure, as embedded in the 'minimum-effort' coordination game, can be overcome using structured, ex post feedbacks related to individual performance among members of a large group. I allow two types of performance feedback mechanisms, namely, negative and positive. I use 'disapproval' and 'approval' ratings about individual choices by group members as proxies for negative and positive feedback mechanisms, respectively. Results show that where participants are allowed to express only disapproval of others' choices, play converges towards the most efficient coordination. In contrast, where participants can express only approval of others' choices, inefficient coordination is obtained.