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Price competition, level-k theory and communication

Publiceringsår: 2008
Språk: Engelska
Sidor: 1-15
Publikation/Tidskrift/Serie: Economics Bulletin
Volym: 3
Nummer: 66
Dokumenttyp: Artikel i tidskrift
Förlag: Economics Bulletin


This paper analyzes communication in a price competition game using the level-$k$ theory of bounded rationality. The level-k analysis predicts prices to be higher with communication than without. Our experimental evidence lends support to the view that communication affects subjects in a way that is compatible with the level-k model, indicating that people lie in order to fool other players that they believe do less thinking. Moreover, the results indicate that the predictive power of the level-k model does crucially depend on the possibility for high level players to form homogenous beliefs about the behavior of the level-0 players


  • Economics


  • ISSN: 1545-2921

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