Abstract

This paper explores the role of inequity aversion as an explanation for observed behavior in experimental Cournot oligopolies. We show that inequity aversion can change the nature of the strategic interaction: quantities are strategic substitutes for sufficiently asymmetric output levels but strategic complements otherwise. We find that inequity aversion can explain why: some experiments result in higher than Cournot–Nash production levels while others result in lower, collusion often occurs with only two players whereas with three or more players market outcomes are very close to Cournot–Nash, and players often achieve equal profits in asymmetric Cournot oligopoly.