Oligopolistic quantity competition with bounded rationality and social comparison

We study sales quantity competition among multiple sellers, through a combination of laboratory experiments and theoretical analyses. We conduct laboratory experiments with a 2 × 2 design from two dimensions: the procurement cost and the number of sellers. The experimental data eloquently exhibit bell-shaped distributions over all alternatives, with peak values consistently larger than the classical Nash equilibrium predictions. We propose a behavioral model which incorporates the behavioral elements of bounded rationality and social comparison, as well as time trends (the learning process). We derive several useful equilibrium properties of the model. The structural estimations show that the proposed behavioral model can effectively explain the experimental data.