Imitation in a Two-Level Hexapoly

Abstract

Horst Todt has described in“Pragmatic Decisions on an Experimental Market” 1972¹ and in“Anbieterverhalten bei komplexen Marktstrukturen” 1975² an experimental tourist market with two vacation resorts each having three hotels. Each hotel chooses its category in terms of individual quality, its bed capacity, price, and advertising. Each resort also has a neighbourhood standard affected by the total of its three hotels’ contributions to“face-lifting” activities. The contribution rules determining this total investment are set by majority vote. Thus two levels of competition are mixed, the individual level and the group level. Both competitive and co-operative relations may be taken into account. The experimental results of Todt indicate that the most prevalent behaviour, apart from capacity-oriented activity, is imitation of the most similar competitor. Todt argues that such imitative behaviour can be thought as governed by what he calls principles of pragmatic decisions. The aim of our paper is to investigate these principles by simulating their impact and to develop out of their core a behavioural theory of imitation and experimentation in the general context of oligopolies.

We axe greatly indepted to Robin Pope who spent much time on looking at the paper and who made many valuable suggestions for improvement.