Arbeitspapier
The Limited Liability Effect in Experimental Duopoly Markets
Brander and Lewis argue in a seminal paper (AER, 1986) that a firm's debt-equity ratio should have important strategic effects on product market competition. We test their model in a duopoly experiment under both, Bertrand and Cournot competition. We find that leverage has strategic effects, but those effects are much weaker than predicted by theory. Specifically, we find for price competition a general tendency towards collusion, which has the same overall consequences - but deviates from - the subgame perfect equilibrium prediction. With quantity competition subjects choose much less debt than predicted by theory. It appears that subjects recognize the strategic effects of their own debt. However, they do not (want to) acknowledge possible strategic advantages of opponents' debt.
- Language
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Englisch
- Bibliographic citation
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Series: Bonn Econ Discussion Papers ; No. 36/2001
- Classification
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Wirtschaft
Oligopoly and Other Imperfect Markets
Bankruptcy; Liquidation
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- Subject
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oligopoly
bankruptcy
debt-equity ratio
- Event
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Geistige Schöpfung
- (who)
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Oechssler, Jörg
Schuhmacher, Frank
- Event
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Veröffentlichung
- (who)
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University of Bonn, Bonn Graduate School of Economics (BGSE)
- (where)
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Bonn
- (when)
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2001
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Oechssler, Jörg
- Schuhmacher, Frank
- University of Bonn, Bonn Graduate School of Economics (BGSE)
Time of origin
- 2001
Other Objects (12)
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Tax Liability Side Equivalence in ExperimentalPosted-Offer Markets
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Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets
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Simultaneous and sequential price competition in heterogeneous duopoly markets: Experimental evidence
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Tax Liability Side Equivalence in ExperimentalPosted-Offer Markets
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Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets
To commit or not to commit: Endogenous timing in experimental duopoly markets
Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets
Experimental duopoly markets with demand inertia : game-playing experiments and the strategy method
Limited Liability
Limiting Limited Liability
Duopoly price competition with limited capacity
Duopoly price competition with limited capacity
Simultaneous and sequential price competition in heterogeneous duopoly markets: Experimental evidence
Simultaneous and sequential price competition in heterogeneous duopoly markets: Experimental evidence
Tax Liability Side Equivalence in ExperimentalPosted-Offer Markets
Tax liability side equivalence in experimental posted-offer markets
Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets
To commit or not to commit: Endogenous timing in experimental duopoly markets
Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets