An Experiment on Prisoner's Dilemma with confirmed Proposals

We apply an alternating proposals protocol with a confirmation stage as a way of solving a Prisoner’s Dilemma game. We interpret players’ proposals and (no) confirmation of outcomes of the game as a tacit communication device. The protocol leads to unprecedented high levels of cooperation in the laboratory. Assigning the power of confirmation to one of the two players alone, rather than alternating the role of a leader significantly increases the probability of signing a cooperative agreement in the first bargaining period. We interpret pre-agreement strategies as tacit messages on players’ willingness to cooperate and on their beliefs about the others’ type.

An experiment on Prisoner’s Dilemma with confirmed proposals

We suggest an alternating proposals protocol with a confirmation stage as a way of solving a Prisoner's Dilemma game. We interpret players' proposals and (no) confirmation of outcomes of the game as a tacit communication device. The protocol leads to unprecedented high levels of cooperation in the laboratory. Assigning the power of confirmation to one of the two players alone, rather than alternating the role of a leader significantly increases the probability of cooperation in the first bargaining period. We interpret pre-agreement strategies as tacit messages on players' willingness to cooperate and as signals pursuing individualistic objectives like publicizing one's bargaining abilities or eliciting those of the opponent.

Gender differences in ultimatum games: despite rather than due to risk attitudes

We analyze experimental data obtained from an ultimatum game framed as a situation of employee-employer negotiation over salaries. Parallel to this, we elicit subjects' risk attitudes. In the existing literature, it has often been conjectured that gender differences in strategic environments are partly due to differences in risky decision making. Our evidence suggests that both gender and risk-related effects co-exist in ultimatum bargaining. However, differences in risk attitudes cannot explain gender effects in ultimatum bargaining.

How do markets manage water resources? An experiment

We experimentally test how a private monopoly, a duopoly and a public utility allocate water of differing qualities to households and farmers. Most of our results are in line with the theoretical predictions. Overexploitation of the resources is observed independently of the market structure. Stock depletion for the public utility is the fastest, followed by the private duopoly and private monopoly. On the positive aspects of centralized public management, we find that the average quality to price ratio offered by the public monopoly is substantially higher than that offered by the private monopoly or duopoly.

An experiment on spatial competition with endogenous pricing

Hotelling's (1929) principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far. We report results from experimental spatial duopolies designed to address this issue. The levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion. The observed prices are consistent with collusion attempts. Our main findings are robust to variations in three experimental conditions: automated vs. human market sharing rule for ties, individual vs. collective decision making, and even vs. odd number of locations.

An ultimatum bargaining experiment on trade union efficiency

We present an ultimatum wage bargaining experiment showing that a trade union facilitating non-binding communication among workers, raises wages by simultaneously increasing employers’ posted offers and toughening the bargaining position of employees, without reducing overall market efficiency.

Good and bad increases in ecological awareness: environmental differentiation revisited

We analyze a vertically differentiated market, assuming that conventional and green firms' products have different impacts on the environment. Heterogeneous consumers choose to be supplied by a conventional or a green firm, depending on their extra willingness to pay for a green product and the relative prices of the products in the market. We show that environmental awareness campaigns may have a negative impact on total welfare. This possibility is shown to exist without consumer misperceptions about the quality of green products and ruling out changes in the coverage and the structure of the market. Surprisingly, both conventional and green firms may benefit from heterogeneity-enhancing awareness campaigns, while social welfare is more likely to be enhanced by heterogeneity-reducing ones.

The stochastic component in choice and regression to the mean

In this article, we illustrate experimentally an important consequence of the stochastic component in choice behaviour which has not been acknowledged so far. Namely, its potential to produce ‘regression to the mean’ (RTM) effects. We employ a novel approach to individual choice under risk, based on repeated multiple-lottery choices (i.e. choices among many lotteries), to show how the high degree of stochastic variability present in individual decisions can distort crucially certain results through RTM effects. We demonstrate the point in the context of a social comparison experiment.

Market effects of changes in consumers' social responsibility

In a duopoly model of vertical differentiation, we study market equilibrium and the resulting social welfare following an increase in the consumer's willingness to pay (WTP) for products sold by socially responsible manufacturers. Different types of such changes emerge depending on their effects on consumer heterogeneity. We show that, in most cases, increases in the consumers' social consciousness yield higher profits to socially responsible firms and may lead to higher levels of social welfare, provided that the market structure is left unchanged. However, when an increase in the consumer's social consciousness changes the market structure, welfare may fall, while the duopolists' profits rise. The resulting tension between private and social interest calls for a cautious attitude toward information campaigns aimed at increasing the consumer's social consciousness.

Ultimatum salary bargaining with real effort

We report experimental results on ultimatum salary bargaining with a real task performed by employee subjects. Compared to the baseline treatment with a hypothetical task, the introduction of a real task raises offers, accepted wages and rejection rates.

Game-theoretic aspects of international mergers: Theory and case studies

This paper studies the exclusion of potential competition as a motivating factor for international mergers. We propose a simple game-theoretic framework in order to discuss the conditions under which mergers that prevent reciprocal domestic competition will occur. Our analysis highlights the shortcomings of antitrust policies based on pre-merger/post-merger concentration comparisons. A review of several recent European cases suggests that actual merger policy often fails to consider potential competition.

Buyer–seller interaction in experimental spatial markets

We report results from experimental spatial markets with endogenous buyer location on a discrete version of Hotelling's linear city. Buyer locations favor more often the hypothesis of transportation cost minimization than that of strategic location aimed at increasing price competition between sellers. However, the latter of the two hypotheses receives systematic support too. Differentiation by seller-subjects is substantially less than the theory would predict for the specific framework used. Our results suggest that location strategies adopted by subjects can be seen as a rational process favoring conservative product design and spatial agglomeration of economic activities.

An experimental validation of hypothetical WTP for a recyclable product

Using a within-subject experiment, we compare hypothetical and real willingness to pay (WTP) for an improvement in the recyclability of a product. Subjects are faced with a real payment scenario after they have responded to a hypothetical question. Contrary to most of the results obtained in similar studies, at apopulation level, there are no significant median differences between actual and hypothetical stated values of WTP. However,within-subject comparisons between hypothetical and actual values indicate that subjects stating a low (high) hypothetical WTP tend to underestimate (overestimate) the value of their actual contributions.

An experimental test of response consistency in contingent valuation

We compare hypothetical and observed (experimental) willingness to pay (WTP) for a gradual improvement in the environmental performance of a marketed good (an office table). First, following usual practices in marketing research, subjects’ stated WTP for the improvement is obtained. Second, the same subjects participate in a real reward experiment designed to replicate the scenario valued in the hypothetical question. Our results show that, independently of the degree of the improvement, there are no significant median differences between stated and experimental data. However, subjects reporting extreme values of WTP (low or high) exhibit a more moderate behavior in the experiment.

Endogenous retailer preferences in intermediate good markets

We model strategic interaction in a differentiated input market as a game among two suppliers and n retailers. Each one of the upstream firms chooses the specification of the input which it will offer.Then, retailers choose their type from a continuum of possibilities. The decisions made in these two first stages affect the degree of compatibility between each retailer's ideal input specification and that of the inputs offered by the two upstream firms. In a third stage, upstream firms compete setting input prices. Equilibrium may be of the two-vendor policy or of the technological monopoly type.