An Experimental Study on Group Identity in Strategic Games

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Abstract: In this paper, we study the effects of group identity in oligopoly markets and its effects on cooperation in the laboratory. We design an experiment with a 3×2 between-subjects design in which we vary the artificial group identity: no-group, in-group, and out-group; and the nature of one-shot strategic interaction: games of strategic substitutes or of strategic complements. Our results show that in treatments with strategic complements, group identity only matters in the first few rounds with in-groups delivering more cooperative choices.  However, this effect disappears in later rounds indicating that the experience of competing is stronger than the initially induced identity. However, in treatments with strategic substitutes, we find that choices are significantly less cooperative with out-groups compared to no-groups throughout the game, indicating that this effect is persistent over time.