The Effects of Competition in Investment Games

Dario Sacco, University of Zurich
Armin Schmutzler, University of Zurich

Abstract

We analyze the effects of competitive intensity on investment behavior in oligopoly games. To this end, we use an experiment based on two-stage games, where cost-reducing investments are followed by either Cournot or Bertrand competition. In the Cournot case, each player’s equilibrium investments are higher than the average investments in each of the asymmetric equilibria in the Bertrand case. Nevertheless, the experiment shows that more aggressive interaction, that is, Bertrand competition, leads to greater investment levels, even though this is inefficient.