Journal of Economic Behavior & Organization

Vol. 53 (2004) 435–446

Two are few and four are many:

number effects in experimental oligopolies
Steffen Huck a , Hans-Theo Normann b , Jörg Oechssler c,∗
aDepartment of Economics, University College London & ELSE, London, UK
b Department of Economics, Royal Holloway, London, UK
c Department of Economics, University of Bonn, Adenauerallee 24, 53113 Bonn, Germany
Received 12 July 2001; received in revised form 20 February 2002; accepted 30 October 2002

Abstract
In this paper we investigate how the competitiveness of Cournot markets varies with the number
of firms in an industry. We review previous Cournot experiments in the literature. Additionally, we
conduct a new series of experiments studying oligopolies with two, three, four, and five firms in
a unified frame. With two firms we find some collusion. Three-firm oligopolies tend to produce
outputs at the Nash level. Markets with four or five firms are never collusive and typically settle at
or above the Cournot outcome. Some of those markets are actually quite competitive with outputs
close to the Walrasian outcome.
© 2003 Elsevier B.V. All rights reserved.

JEL classification: L13; C92; C72

Keywords: Cournot oligopoly; Experiments; Collusion

1. Introduction

Since Fouraker and Siegel’s (1963) pioneering Cournot experiments, a considerable num-
ber of studies has deepened our understanding of the Cournot trading institution. For ex-
ample, various laboratory experiments investigated the impact of communication between
rivals, the provision of detailed information about firms’ actions and payoffs, and the role
of cost asymmetries—institutional details that might be of great importance for antitrust
policy issues. However, it seems surprising that up to now little is known about how the
number of firms affects competition. This paper tries to fill this gap.

∗ Corresponding author. Tel.: +49-228-73-9284; fax: +49-228-73-1785.

E-mail address: oechssler@uni-bonn.de (J. Oechssler).

0167-2681/$ – see front matter © 2003 Elsevier B.V. All rights reserved.
doi:10.1016/j.jebo.2002.10.002
436 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446

We analyze how the number of firms affects the level of competition (relative to the
equilibrium prediction). For this purpose, we review the scattered evidence of previous
Cournot experiments as well as present new data. Furthermore, while most previous studies
used only an economic frame for the experiments, we introduce a control treatment with a
neutral frame.
In a classic paper, Selten (1973) argues that “four are few and six are many”, referring to
the number of firms that separates a small group of firms from a large one. This distinction
between small and large groups expresses the general belief (see, e.g., Chamberlin, 1933)
that cooperative behavior should be expected in small groups, whereas in large groups
non-cooperative (Nash equilibrium) behavior should prevail.1 While Selten’s prediction
depends on specific institutional assumptions regarding commitment possibilities in a quota
cartel, we want to test the general notion that a “large” group need not be very large indeed.
There are several papers pertaining to market structure and the competitiveness of out-
comes in posted-offer markets (see Holt, 1985, for a survey). In posted-offer experiments,
a key question is for how many firms the market price is above marginal costs. For ex-
ample, Issac and Reynolds (1989) analyze posted-offer markets with two and with four
firms and conclude that four firms may be sufficient for competitive performance. In the
Cournot model, the price–cost margin depends directly on the number of firms,2 a feature
that explains the dominance of the Cournot model in theoretical merger analysis. There-
fore, a systematic analysis of number effects in experimental Cournot oligopoly seems
promising.3
To this effect, we summarize the evidence of previous Cournot experiments in a meta-
analysis. A general problem with this approach is, however, that the existing experiments
differ with respect to numerous design features. Therefore, we supplement the meta-analysis
by a set of experiments that, for the first time, compare experimental Cournot oligopolies in
a unified frame for two, three, four, and five firms. For both the meta-analysis and our own
data, we introduce a measure that relates actual total output to total output in equilibrium
and find that it is increasing in the number of firms. More specifically, we conclude that
“many” may be even less than Selten suggested, namely about four firms.
As mentioned above, the number of firms is not the only factor affecting competition in
experimental markets. This implies that there exists no unique number of firms that deter-
mines a definite borderline between non-cooperative and collusive4 markets irrespective of
all institutional and structural details of the experimental markets. We will review this ex-
perimental research and summarize the impact other factors have on collusion in Section 2.
Section 3 presents the meta-analysis of the impact of the number of firms on competition.
Section 4 introduces our own experimental design and presents our data. In Section 5 we
present data from control treatments with a neutral frame. Section 5 concludes.

1 The notion that cooperation is harder to sustain as the number of firms grows larger is also supported by

repeated game arguments without, however, giving a specific critical number of firms.
2 In posted-offer markets, the market price may also directly depend on the number of competitiors if firms play

a mixed strategy equilibrium. However, the experimental evidence does not support the hypothesis that subjects
mix over prices (see Brown-Kruse et al., 1994).
3 A related study with differentiated Bertrand competition is by Dolbear et al. (1968), and one with homogenous

Bertrand competition is by Dufwenberg and Gneezy (2000).

4 We refer to all markets with prices above Nash prices as “collusive”.
 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446 437

2. Factors facilitating collusion or competition

In this section, we discuss various factors that are known to affect competition and
collusion in experimental markets. With two exceptions, we restrict ourselves to evidence
from Cournot markets.
Folk theorem type results show that, strictly speaking, collusive behavior is only sus-
tainable when the Cournot stage game is repeated infinitely (or indefinitely) often and
the discount factor (the continuation probability) is sufficiently high. Feinberg and Husted
(1993) tested this prediction by running Cournot sessions with high and low continuation
probabilities. Collusion was a subgame perfect Nash equilibrium only with the high proba-
bility, and the results show that a low probability, indeed, reduced the instances of successful
collusion.
In experimental praxis, an infinite number of periods is not required to make cooperation
possible (often a few periods seem sufficient). Thus, it makes sense to ask what other factors
facilitate collusion given an experiment of finite length. When subjects are randomly re-
matched with different subjects every period, obtaining tacit collusion through rewards and
punishments seems difficult. It is thus not surprising that (Holt, 1985) and Huck et al. (2001)
find that collusion occurs only when subjects are matched in fixed groups for the entire exper-
iment. With random matching, there are few attempts to collude and virtually no successful
ones. As a result, with random matching the Cournot–Nash solution is a good prediction.
A second well-known factor facilitating collusion are pre-play communication and an-
nouncements. While this has not been investigated for Cournot markets, the effect is well
established for other experimental market institutions. For example, Davis and Holt (1990)
and Cason and Davis (1995) show that non-binding price announcements in posted-offer
triopolies lead to higher prices. In differentiated Bertrand oligopoly markets, Harstad et al.
(1998) found the same result. Even though these announcements are cheap talk, they render
markets significantly more collusive.
In contrast to the pre-play announcements, the publication of actions and profits after
each round makes markets more competitive. This effect was first found by Fouraker and
Siegel who had two Cournot oligopoly treatments labelled as “complete” and “incomplete”
information. With “incomplete” information, only an aggregate measure of competition
was provided to subjects in each period (price and aggregate output). With “complete”
information, individual outputs and profits were given. It turned out that this made markets
more competitive.
In Huck et al. (1999, 2000a) these results were confirmed in various environments:
more information about competitors’ actions and profits seems to increase competition.
Furthermore, in Huck et al. (1999) it is shown that more information about the market (in
the form of demand and cost functions, which might be provided in various forms) decreases
competition and reduces the variability of actions.
What is the impact of experience on market outcomes in experiments? While there is
no evidence on this reported for Cournot markets, Benson and Faminow (1988) show that,
in posted-price markets with differentiated products, experience plays a significant role in
achieving equilibria predicted by tacit collusion. Even though the sessions with experi-
enced subjects were scheduled one month after the initial sessions, experience significantly
increased prices.
438 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446

Most Cournot experiments involve symmetric firms. Deviating from this, Mason et al.
(1991, 1992) ran sessions with asymmetric Cournot duopolies and found that outputs be-
come significantly higher with asymmetric cost as compared to the symmetric control. It
appears that cost asymmetries not only reduce collusion in the sense that there are fewer
successful attempts to reduce outputs, but also that outputs are pushed even above the
static Nash equilibrium value. Rassenti et al. (2000) conducted five-firm oligopolies with
asymmetric cost and report failures of the Nash prediction at the firm level. Play was only
consistent with the Nash prediction at the industry level.
Finally, Mason et al. (1991) investigate whether or not gender affects choice behavior in
Cournot duopolies. They report that women initially tend to be more cooperative. But these
differences vanish later on during the game.

Summary 1. Factors reducing competition in laboratory markets are repeated interaction

(in particular in combination with high discount factors), pre-play communication, and
experience. Information about market parameters and cost symmetries reduce the variability
of outputs and are conducive to Nash equilibrium play. Information about rivals’ actions
and profits increases competition.

3. A meta-analysis of n-firm Cournot experiments

We now proceed to compare several Cournot experiments with respect to “number

effects”.5 To facilitate this comparison, we select treatments that share the following fea-
tures: (i) fixed groups of firms interact repeatedly over several periods; (ii) the design does
not allow for communication; (iii) feedback after each round is such that subjects receive
only aggregate information about the behavior of other firms; (iv) there is complete infor-
mation about the own payoff function; (v) firms are symmetric; (vi) there is no discounting;
(vii) products are homogeneous;6 and (viii) framing of the experiments is economic rather
than neutral. In Table 1 we list all experiments with these properties.7 Note that most of
these properties are conducive to Cournot–Nash outcomes.8
Despite these similarities, the experiments in Table 1 differ with respect to several aspects.
With two exceptions, payoffs in the experiments were based on linear demand and cost
functions.9 The exceptions are Feinberg and Husted (1993) and Offerman et al. (2002).10
In most cases, information about the model was given indirectly by providing payoff tables.
Deviating from this, Binger et al. (1990) and Offerman et al. (2002) gave demand and

5 We are grateful to several colleagues for providing unpublished data.

6 For experiments with differentiated Cournot competition, see Davis and Wilson (2000) and Huck et al. (2000a).
7 We include the experiment of Rassenti et al. (2000) with asymmetric costs because there is only one other

experiment with five firms.

8 Clearly, property (i) is not, but as there is no rematching in real industries it seems to be the more important

case.
9 In Mason et al. (1991) there is a fixed cost. In Holt (1985), Bosch-Domenech and Vriend (2003) and Huck

et al. (1999), there are negative fixed costs. In Binger et al. (1990), there is an intial capital endowment.
10 In Feinberg and Husted, the functional forms of the model are not given. Inspecting the payoff table, it appears

that they are not derived from linear demand and cost.
 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446 439

Table 1
Previous Cournot experiments
Study n Treatment Periodsa Q̄ QN r

Binger et al. (1990) 2 2 w/o comm. 4–43 40.61 40 1.02

Bosch-Domenech and Vriend 2 Easy 1–23 37 40 0.93
(2003)
Holt (1985) 2 First market 1–13 16.05 16 1.00
Holt (1985) 2 Second market 1–9 15.92 16 1.00
Feinberg and Husted (1993) 2 No discounting 5–11 30.89 34 0.91
Mason et al. (1991) 2 All subjects 25 21.56 32 0.67
Mason et al. (1992) 2 LL/HH 1–35 57.6/50.4 64/56 0.90
Mason and Phillips (1997) 2 LL/HH 1–35 54.02/47.23 64/56 0.84
Huck et al. (2001) 2 Fixed matching 1–10 7.64 8 0.95
Fouraker and Siegel (1963) 2 Incompl. info. 21 41.8 40 1.05
Offermann et al. (1997) 3 Q 1–100 233.52 243 0.96
Bosch-Domenech and Vriend 3 Easy 1–23 69.6 66 1.05
(2003)
Fouraker and Siegel (1963) 3 Incompl. info. 21 48.1 45 1.07
Davis et al. (1999) 3 UC and AC 1–45 12.33 12 1.03
Beil (1988) 4 NM 1–20 35.47 36 0.99
Huck et al. (2002) 4 A 20–40 83.98 79.2 1.06
Huck et al. (1999) 4 Best 20–40 82.56 79.2 1.04
Rassenti et al. (2000) 5 75-no-showb 50–75 454.6 425 1.07
Binger et al. (1990) 5 5 w/o comm. 4–43 51.53 50 1.03
a Periods used to compute the averages.
b Asymmetric costs.

cost schedules to the subjects, and Huck et al. (1999, 2000a, 2002) provided a “profit
calculator”.11
The size of the strategy space ranges from 2 (Feinberg and Husted) to 85 (Offerman et al.)
output levels. In Huck et al. (1999, 2000a, 2002) a continuous action space is approximated
by allowing for two decimal points when entering quantities between 0 and 100. The number
of repetitions is between 9 (Holt, 1985) and 100 (Offerman et al.). There are three types
of rules for the termination of the experiment. Offerman et al. (2002), Bosch-Domenech
and Vriend (2003), Huck et al. (1999, 2000a, 2001, 2002) have a publicly known finite
number of periods. In Fouraker and Siegel (1963), Beil (1988), Mason et al. (1991, 1992),
Binger et al. (1990), Mason and Phillips (1997), Davis et al. (1999) and Rassenti et al.
(2000) the number of periods was not given to subjects in advance. A random end with a
publicly known termination rule and with an observable randomization device was used in
Holt (1985) and Feinberg and Husted (1993).12
We compare the results of all those studies with respect to the ratio of average total
quantity in the market to the total quantity predicted by the Cournot–Nash equilibrium,
r := Q̄/QN . Since in many cases complete data was not available, we had to refer to the
published averages to compute r, which implies that different periods of the game had to be

11 For a description, see Section 4.

12 Concerning the pros and cons of these termination rules, see Holt (1985) and Selten et al. (1997).
440 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446

used (see the column “periods” in Table 1).13 We are interested in how r varies with respect
to the number of firms in a market. A clear trend emerges: r is increasing with the number
of firms. While the average ratio for duopolies is 0.927, it becomes 1.027 for three firms,
1.029 for four firms and 1.050 for five firms. Pearson’s correlation coefficient between r
and n, the number of firms, is 0.51 and is significant at the 5 percent level.

Summary 2. Previous studies indicate that collusion sometimes occurs in duopolies and
is very rare in markets with more than two firms. On average, total outputs in markets
with more than two firms slightly exceed the Cournot prediction. There is a weak trend
suggesting that this effect may become stronger as the number of firms increases.

4. Cournot oligopolies in a unified frame

In this section we introduce a new experiment that allows testing for number effects
in oligopoly in a unified economic frame. In Section 5 we describe treatments with a
neutral frame. In a series of computerized14 experiments, we studied linear symmetric
n-firm Cournot oligopoly markets. We decided to design the experiment such that it is
best compatible with the studies reviewed in Section 3 by satisfying properties (i)–
(viii).
Common to all markets were the following demand and cost functions. The demand side
of the market was modeled with the computer buying all supplied units according to the
inverse demand function
p = max{100 − Q, 0}


with Q = ni=1 qi denoting total quantity. The cost function for each seller was simply
C(qi ) = qi ,
that is, constant marginal cost was equal to one.
It is straightforward to derive the Nash equilibrium for this market. The individual equi-
librium output is
99
qiN =
n+1
and the equilibrium profit is πiN = (qiN )2 . Total equilibrium outputs QN = 99n/(n + 1)
are shown in Table 2. Alternative benchmark outcomes are the symmetric collusive output,
which is qiC = 99/(2n) for an individual firm and QC = 49.5 in total, and the competitive
(or rivalistic) outcome where price equals marginal cost at qiR = 99/n and QR = 99,
respectively.
Subjects could choose quantities from a finite grid between 0 and 100 with 0.01 as
the smallest step. The number of periods was 25 in all markets, and this was commonly
known.
13 However, in most experiments where complete data is available, no clear time trend emerges.
14 We use the software toolbox “Z-Tree”, developed by Fischbacher (1999).
 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446 441

Table 2
Average total quantities
Number of firms QN Q̄1–25 r1–25 Q̄17–25 r17–25
2 66.00 59.36 (3.76) 0.89 60.44 (7.05) 0.91
3 74.25 73.47 (6.85) 0.99 72.59 (4.53) 0.98
4 79.20 77.26 (7.75) 0.98 80.67 (4.85) 1.02
5 82.50 86.21 (7.11) 1.05 88.43 (8.80) 1.07

Standard deviations of Q̄ across groups in parenthesis.

Subjects had information about demand and cost conditions to calculate best replies to
the quantities of the other firms. This information was provided verbally and in the form of a
“profit calculator”. When fed with data regarding the other firms (total quantities of the other
firms), the calculator allowed subjects to try out the consequences of own actions. After
each period, subjects were informed about their own quantity and profit and the aggregate
quantity their competitors produced.15
For each number of firms, we conducted six markets. The six duopolies were run in one
session. For the three and four-firm markets, we had two sessions, and for the five-firm
oligopolies, there were three sessions.16 Subjects were randomly allocated to computer
terminals in the lab such that they could not infer with whom they would interact. The 84
subjects for this experiment were recruited via telephone and email at Humboldt University,
Berlin. No subject participated in more than one session nor had any subject previous
experience with market experiments.
Subjects were paid according to their total profit in the fictitious currency ECU earned in
the 25 periods. We varied the exchange rates into DM such that, depending on the number
of firms, subjects would have made identical earnings at Nash equilibrium play. For all
subjects there was an initial capital of 500 ECU. The average payoff was about DM 22
(Euro 11). Sessions lasted about 45–60 min including instruction time.
Instructions (see Appendix A) were written on paper and distributed in the beginning of
each session. After the instructions were read, we explained the different windows of the
computer screen. When subjects were familiar with both the rules and the handling of the
computer program, we started the first round.
Table 2 and Fig. 1 compare total quantities as implied by the Nash equilibrium prediction.
We report total quantities in the experiment, averaged over all rounds and the final eight
rounds, respectively.17 In all cases average total quantity increases with the number of
firms. The differences are all significant at the 1 percent level according to a MWU test for
rounds 17–25. For rounds 1–25, the differences between three and two firms are positive

15 Note that a profit calculator essentially gives the same information as the profit tables normally used in Cournot

experiments. With a profit table, the necessarily rather coarse discrete action space often leads to multiple Nash
equilibria (Holt, 1985). With a profit calculator, a continuous action space can be approximated such that additional
Nash equilibria are arbitrarily close to the prediction.
16 Some of these sessions served as control treatments in an experiment on mergers in Huck et al. (2000b).
17 There is no significant time trend in the data after the first three or four rounds. In a regressions of total

quantities on time the trend variable is not significant for rounds 5–25 in any treatment (markets with three and
five firms show no time trend even when the first four rounds are included).
442 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446

100
90
80
average quantity

70
60 Mean1-25
50 Mean17-25
40 Nash
30
20
10
0
5 4 3 2
Number of firms

Fig. 1. Predictions and average quantities in rounds 1–25 and 17–25.

Table 3
Classification of sessions
n Nash Session

1 2 3 4 5 6

2 66.00 53.80 (C) 57.36 (C) 58.44 (N) 60.40 (N) 61.28 (N) 64.86 (N)
3 74.25 63.24 (N) 69.84 (N) 72.48 (N) 74.64 (N) 77.04 (N) 83.56 (N)
4 79.20 72.12 (N) 73.00 (N) 74.24 (N) 75.36 (N) 76.00 (N) 92.82 (R)
5 82.50 76.80 (N) 80.04 (N) 83.52 (N) 89.00 (N) 93.36 (R) 93.96 (R)
Classifications: (C)ollusive, (N)ash, (R)ivalistic.

and significant at the 1 percent level and between five and four firms at the 5 percent level.
The difference between four and three firms is positive but not significant.18
The ratio of actual to predicted total quantities, r, is also increasing with the number of
firms. Most differences are not significant when n is increased by 1. However, the crucial
difference in r between two and four firms (to which our title alludes) is significant at
a 2 percent level of significance for r17–25 and at a 5 percent level for r1–25 (one-sided
MWU tests). Furthermore, Pearson’s correlation coefficient between r1–25 and n is 0.53
(significant at 1 percent level). Between r17–25 and n it is 0.61 (also significant at 1 percent
level).
Next we classify each individual session according to the degree of competitiveness.
Our measure for this is aggregate output, and we apply Fouraker and Siegel’s classification
scheme by checking which of the three predictions: (C)ollusive, (N)ash, or (R)ivalistic,
the aggregate output is closest to and classify the outcomes accordingly.19 In Table 3, we
rank the six sessions according to their aggregate output. With five firms, two sessions
qualify as rivalistic and three as Nash. Also with four firms, we find that all sessions qualify

18 This seems to be caused by some very high quantities in rounds 15 and 16 (which appear to be punishment

actions) of the three-firms treatment.

19 The three predictions refer to QC , QN and QR as derived above.
 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446 443

either as Nash or as rivalistic. With two firms, two out of six sessions are Collusive and the
remaining are classified as Nash.20 Thus, there is clear evidence that there is a qualitative
difference between two and four or more firms. Only with three firms, all sessions classify as
Nash.

Summary 3. In our experiments with a unified economic frame, we find that collusion
sometimes occurs with two firms. For three-firm oligopolies Nash equilibrium seems to be
a good predictor. Markets with four or more firms are never collusive and typically settle
around the Cournot outcome while some of them are very competitive with outputs close to
the Walrasian outcome. Overall, the ratio of actual and predicted total output is significantly
increasing with the number of firms.

5. A neutral frame

Most Cournot experiments so far were conducted with an economic frame; that is, labels
such as “firms”, “market”, and “price” were used in the instructions. In our view this is
sensible since the purpose of the experiments is not to test some abstract game theoretic
concept but rather a specific economic institution. Nevertheless, in terms of experimental
methodology it may be interesting to know whether an economic and a neutral frame
produces different results. For example, the ultimatum game is equivalent to a posted-offer
market with a single seller and a single buyer. In the first case, labelling is neutral; in the
second, it is economic. For the posted-offer institution, Hoffman et al. (1994) and Franciosi
et al. (1995) have compared economic versus neutral labelling. For the Cournot market
institution, this has so far not been done. Thus, in this section we provide additional data
from Cournot experiments with a neutral frame with two and five participants.
The functional forms, and therefore the predictions of these sessions, are completely
identical to those above. In the instructions and on the computer screens, we did not use any
economic labelling. Rather than “firms” we spoke of “participants”, and instead of “output”,
subjects had to choose a “number”. The relation between aggregate output and price was
described as follows. “The chosen numbers determine what you earn in each round. More
specifically, we will multiply the number you have chosen (X) with some other number (Y ),
and this product (X × Y ) will determine your earnings. The following important rule holds.
The larger the sum of all five numbers chosen, the smaller the second number Y . Moreover,
Y will be −1 from a certain sum upwards and you will make a loss if Y is below 0”.
For both of these neutral treatments we had six groups of subjects, so another 42 sub-
jects participated here. The sessions were conducted at Royal Holloway, London. Average
payments were 11.55 pounds, including a show-up fee of 5 pounds.
In games with five participants, average outputs are 84.86 (4.14) for periods 1–25, and
81.32 (3.48) for periods 17–25.21 These values are smaller than those with economic
frame but not significantly different from them according to MWU tests at all conventional

20 For n = 2, the mean of the second and the third session are almost equidistant from Nash and collusion. Given

some variability within a session, both classifications seem plausible. Also, for n = 5, session 4 could plausibly
be classified as rivalistic.
21 Standard deviation across groups in parenthesis.
444 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446

significance levels. In games with two participants, average outputs are 64.85 (4.18) for
periods 1–25 and 65.86 (0.75) for periods 17–25, very close to the Nash output. These
averages are significantly larger than those with an economic frame (at 5 percent level,
two-sided MWU test). It appears that the neutral frame leads to outcomes closer to the Nash
prediction than experiments with economic frame. In particular, collusive behavior may not
even be feasible with two firms.
The latter result seems to be in contrast to those of Hoffman et al. (1994) and Franciosi et al.
(1995) where neutral framing induced more cooperative outcomes. A possible explanation
might be that frames interact with the objective structure of a game. With a neutral frame in
the ultimatum game, it might appear obvious to participants that fairness is the main issue
of the experiment. By contrast, with the economic frame in posted-offer markets, this may
be less obvious. Hence, the economic frame yields outcomes closer to the game theoretic
prediction. In Cournot experiments, a neutral frame might let the game appear to subjects
as a non-trivial computational problem. The economic frame, however, might immediately
induce the idea of collusion. The general conclusion from this is that framing effects are
certainly important, but by no means do neutral frames always imply more cooperative
outcomes.22

Summary 4. The data from our experiments with neutral frame suggest that collusion
may be difficult to achieve even in markets with only two participants. In general, average
quantities are closer to the Cournot prediction than with an economic frame.

6. Conclusion

Number effects seem to play an important role in Cournot oligopolies. The review of
the existing literature on Cournot experiments and our own new experiments suggest that
while firms in duopolies sometimes manage to collude, this seems to be difficult to achieve
in markets with more firms. In fact, total average output often exceeds the Nash prediction
in those markets. Furthermore, the data suggest that these deviations are increasing in the
number of firms. Both effects may be of relevance when evaluating the potential effects of
proposed mergers.

Acknowledgements

We are indebted to Wieland Müller and Dirk Engelmann for help in conducting the ex-
periments, and to Claudia Keser for suggesting the title of the paper. Doug Davis and the
Co-Editor David Grether made very useful comments. We are also grateful for financial
support by the Deutsche Forschungsgemeinschaft, grant OE-198/1/1. The first author ac-
knowledges financial support from the Economic and Social Research Council (UK) via
ELSE.
22 But neither does an economic frame exclude significant fairness considerations. For example, Huck et al.

(2001) find a substantial amount of inequality aversion in a Stackelberg duopoly with an economic frame.
 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446 445

Appendix A. Translation of the instructions23

Welcome to our experiment!

Please read these instructions carefully! Do not speak to your neighbors and keep quiet
during the entire experiment! If you have a question, raise your hand. We will then come
to your booth.
In this experiment you will repeatedly make decisions that can earn you real money. How
much you earn depends on your decisions and on the decisions of other participants. All
participants receive the same instructions.
You will stay anonymous for us and for the other randomly chosen participants you
contact during the experiment.
In this experiment you represent a firm that, like four (three, two, one) other firms,
produces and sells one and the same product on a market. You will be constantly matched
with the same participants. Costs of production are 1 ECU per unit (this holds for all firms).
All firms will always have to make one decision, namely what quantity they wish to produce.
The following important rule holds: The larger the total quantity of all firms, the smaller
the price in the market. Moreover, the price will be zero from a certain amount of total
output upwards.
Your profit per unit of output will be the difference between the market price and the unit
cost of 1 ECU. Note that you will make a loss if the market price is below the unit costs.
Your profit per round is, thus, equal to the profit per unit multiplied by the number of units
you sell.
In each round the output decisions of all five (four, three, two) firms will be registered,
the corresponding price will be determined and the profits will be computed.

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23 These are the instructions for the economic frame. The instructions for the neutral frame are similar except as

described in Section 5.
446 S. Huck et al. / J. of Economic Behavior & Org. 53 (2004) 435–446

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