In eighteen trials of the experiment the average surplus gained was 36 per cent of the maximum…

Case study 9.1: Experiments testing the Cournot equilibrium

An experiment was conducted in 1990 regarding the behaviour of people in a Cournot-type situation. Participants were put into groups of eight players and each player was given ten tokens. Each token could be redeemed for 5 cents or it could be sold on a market. When tokens were sold on the market the price was determined by how many tokens were offered by all eight players, in the following equation: 

P = 23 – 0.25QT 

where QT is the total number of tokens put up for sale by all eight players. Players could choose howmany of their tokens to put up for sale and how many to redeemfor the fixedpriceof 5 cents. At the endof each trial the total surplus was calculated, being measured as the excess value received by all the players over the 5 cents per token redeemable value. For example, if a total of sixty tokens are sold, themarket price is 8 cents and the total surplus is 180 cents.

Questions

1. If the players collude, what will be the market price and the total surplus gained?

2. If the players act as in a Cournot oligopoly, what will be the market price and the total surplus gained?

3. In eighteen trials of the experiment the average surplus gained was 36 per cent of the maximum possible from collusion. Does this evidence support the existence of Cournot–Nash behaviour?