Group dynamics in experimental studies—The Bertrand Paradox revisited

Different information provision in experimental markets can drastically change subjects’ behavior. Considering the repeated Bertrand duopoly game of Dufwenberg and Gneezy [Dufwenberg, M., Gneezy's, U., 2000. Price competition and market concentration: an experimental study. International Journal of Industrial Organization 18, 7–22.], we find that population feedback about the prices in other markets outside a subjects’ own current market causes group dynamics that prevent prices from convergence to Nash equilibrium. Limited information comprising only the decisions of a subject’s own opponent, in contrast, leads to competitive behavior. When we extend the number of periods from 10 to 25 in the full information treatment (FULL) we observe a very robust cyclical up and down movement of prices. We can explain tacit coordination in our experiment with an extended learning direction model and leadership by example.