understanding heterogeneous preferences in random utility models a latent class approach a finite mixture approach toconditional logit models is developed in whichlatent classes are used to promoteunderstanding of systematic heterogeneity the model is applied to wilderness recreationin which a branded choice experiment involvingchoice of one park from a demand system wasadministered to a sample of recreationists the basis of membership in the classes orsegments in the sample involved attitudinalmeasures of motivations for taking a trip aswell as their stated preferences overwilderness park attributes the econometricanalysis suggested that four classes of peopleexist in the sample using the model toexamine welfare measures of some hypotheticalpolicy changes identified markedly differentwelfare effects than the standard singlesegment model and provided insight into thedifferential impact of alternative policies

controlling for observed and unobserved site characteristics in rum models of recreation demand hatch act and state of iowa the iowa department of natural resources and the u s environmental protection agency s science to achieve results star program grant r830818

equilibrium in hotelling s model of spatial competition we study hotelling s two stage model of spatial competition in which two firms first simultaneously choose locations in the unit interval then simultaneously choose prices under hotelling s assumptions uniform distribution of consumers travel cost proportional to distance inelastic demand of one unit by each consumer the price setting subgames possess equilibria in pure strategies for only a limited set of location pairs because of this problem pointed out independently by vickrey 1964 and d aspremont et al 1979 hotelling s claim that there is an equilibrium of the two stage game in which the firms locate close to each other is incorrect a result of dasgupta and maskin 1986 guarantees that each price setting subgame has an equilibrium in mixed strategies we first study these mixed strategy equilibria we are unable to provide a complete characterization of them although we show that for a subset of location pairs all equilibria are of a certain type we reduce the problem of finding an equilibrium of this type to that of solving three or fewer highly nonlinear equations at each of a large number of location pairs we have computed approximate solutions to the system of equations next we use our analytical results and computations to study the equilibrium location choices of the firms there is a unique up to symmetry subgame perfect equilibrium in which the location choices of the firms are pure in it the firms locate 0 27 from the ends of the market at this equilibrium the support of the subgame equilibrium price strategy is the union of two short intervals most of the probability weight is in the upper interval so that this strategy is reminiscent of occasional sales by the firms we also find a subgame perfect equilibrium in which each firm uses a mixed strategy in locations in fact in the class of strategy pairs in which the firms use the same mixed strategy over locations and this strategy is symmetric about 0 5 there is a single equilibrium in this equilibrium most of the probability weight of the common strategy is between 0 2 and 0 4 and between 0 6 and 0 8 there is a wide range of pure nash as opposed to subgame perfect equilibrium location pairs the subgame strategies in which each firm threatens to charge a price of zero in response to a deviation support all but those location pairs in which the firms are very close

sources of bias in retrospective decision making experimental evidence on voters limitations in controlling incumbents are citizens competent to assess the performance of incumbent politicians observational studies cast doubt on voter competence by documenting several biases in retrospective assessments of performance however these studies are open to alternative interpretations because of the complexity of the real world in this article we show that these biases in retrospective evaluations occur even in the simplified setting of experimental games in three experiments our participants 1 overweighted recent relative to overall incumbent performance when made aware of an election closer rather than more distant from that event 2 allowed an unrelated lottery that affected their welfare to influence their choices and 3 were influenced by rhetoric to give more weight to recent rather than overall incumbent performance these biases were apparent even though we informed and incentivized respondents to weight all performance equally our findings point to key limitations in voters ability to use a retrospective decision rule

spatial price discrimination in agricultural product procurement markets a computational economics approach significant transport costs and spatially distributed supply and processing create oligopsony power in agricultural markets price discrimination expressed in the form of partial or complete absorption of freight charges by processors is often observed in these environments but we understand little about how these pricing decisions are made analytical approaches are often intractable as an alternative we propose a computational economics approach to analyze a general spatial competition model and study firms choices of spatial pricing policy instead of the commonly presumed free on board pricing we find that buyers choose price discrimination either through uniform delivered pricing or through partial freight absorption

handling unobserved site characteristics in random utility models of recreation demand abstract this paper presents a new random utility model of recreation demand that addresses the unobserved characteristics of recreation sites most random utility recreation demand models implicitly assume that all relevant site characteristics are observed by the researcher or allow for the possibility of unobserved characteristics in a restrictive manner unlike traditional approaches the proposed model avoids the bias unobserved site characteristics can cause in welfare estimates and the travel cost parameter monte carlo simulations motivate the proposed model by showing that it provides more efficient parameter estimates in contrast existing methods yield less efficient estimates and biased standard errors that overstate precision an empirical application to recreational fishing in wisconsin illustrates the potential importance of this modeling innovation in this application controlling for unobserved characteristics is important for a range of model specifications

pricing prototypical products when we think of colas coca cola first comes to mind products such as cola cola tide laundry detergent and chapstick lip balm are the prototypical products in their respective categories for more than three decades research in consumer psychology has accumulated evidence on how prototypicality influences memory shapes the composition of consideration set and affects purchase decision yet there is no research on how it changes the competitive behavior of firms in a horizontally differentiated market for example some prototypical products are priced lower than other products in their category whereas in certain other categories the prototypical product is priced higher we propose a novel model of spatial competition where the prototypicality of a product influences the probability of the product being included in consumers consideration sets without affecting its valuation using the model we examine theoretically the impact of prototypicality on the pricing decisions of competing firms our analysis shows that when consumer valuations are low the prototypical product is priced lower than a nonprototypical product and earns more profits however when consumer valuations are high the rank order of the prices of the prototypical product and a nonprototypical product is reversed but not the order of profits we subject these predictions to an empirical test the experimental results lend support for the qualitative predictions of the model

modeling recreation site choice do hypothetical choices reflect actual behavior we examine the ability of revealed preference rp site specific stated preference sp transferred sp and joint rp sp models to predict aggregate and individual recreation site choice in a holdout sample for two statistical comparisons the rp model provided the most accurate predictions of individual choices however the transferred sp model applied directly or estimated jointly with the rp data performed best in three aggregate and one individual prediction test these findings suggest that data from well designed and conducted sp surveys from one site can be combined with site specific rp data from another site to generate improved models of recreation site choice an objective of many economic studies is to construct models of choice behavior these models form the basis for welfare mea surement the models can also be used to make predictions of choice behavior that can inform policy makers of the proba ble results of changes in economic fac tors resource

spatial equilibrium with entry this paper examines spatial equilibrium in political competition when established parties choose their platforms competitively while rationally anticipating entry of a vote maximizing third party the resulting equilibrium is substantially different from the hotelling median equilibrium established parties are spatially separated and third parties will generally lose the election this provides one theoretical explanation for the stability of two party systems namely that non cooperative behavior between established parties can effectively prevent third parties from winning

a repeated nested logit model of atlantic salmon fishing participation and site choice for atlantic salmon fishing are modeled in the context of a repeated three level nested logit model consumer s surplus measures are derived for different levels of species availability in the penobscot river the most important salmon river in new england for comparison six other travel cost models are estimated these include restrictive cases of the nested logit model a partial demand model and two single site demand models comparisons across these models indicate the importance of modeling the participation decision including income effects and of adopting a nested logit structure rather than a single level logit structure

combining contingent valuation and travel cost data for the valuation of non market goods the travel cost method tcm has long been used to infer the economic value of nonmarket resources and public goods more recently contingent valuation cvm survey methods have gained popularity for eliciting these values here cvm survey responses are combined with tcm data on actual market behavior to estimate jointly both the parameters of the underlying utility function and its corresponding ordinary demand function this is a prototypical empirical example of a new modeling strategy variants of which should prove useful in many applications especially where reliance on a single valuation method is undesirable

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

the rationally uninformed electorate some experimental evidence this essay reports on a series of twenty four election experiments in which voters are allowed to decide between voting retrospectively and purchasing contemporaneous information about the candidate challenging the incumbent each experiment consists of a series of election periods in which dummy candidates choose spatial positions which represent either their policy while in office or a promise about policy if elected subjects voters are told the value to them of the incumbent s policy but they must decide prior to voting whether or not to purchase information about the value of the challenger s promise in general our data conform to reasonable expectations voters purchase less information and rely more on retrospective knowledge when the candidates strategies are stable and their likelihood of purchasing information during periods of instability is tempered by the likelihood that their votes matter by the reliability of the information available for purchase and by the degree of instability as measured by changes in each voter s welfare

equilibrium in competitive insurance markets with ex ante adverse selection and ex post moral hazard abstract existence of pure strategy equilibria is studied in health insurance markets that exhibit both ex ante adverse selection of the rothschild stiglitz wilson type and ex post hidden information moral hazard it is found that ex post moral hazard has two offsetting effects on the existence of equilibrium and that in general it is difficult to say whether an equilibrium is more or less likely to exist numerical simulations and an analytical example confirm that moral hazard may increase the likelihood of equilibrium these results are interpreted as evidence that health maintenance organization hmo markets could be less likely to exhibit stable equilibria than are fee for service insurance markets

a latent segmentation approach to a kuhn tucker model an application to recreation demand abstract in this paper we extend the latent segmentation approach to the kuhn tucker kt model the proposed approach models heterogeneity in preferences for recreational behavior using a utility theoretical framework to simultaneously model participation and site selection decisions estimation of the latent segmentation kt model with standard maximum likelihood techniques is numerically difficult because of the large number of parameters in the segment membership functions and the utility function for each latent segment to address this problem we propose the expectation maximization em algorithm to estimate the model in the empirical section we implement the em latent segmentation kt approach to analyze a southern california beach recreation data set our empirical analysis suggests that three groups exist in the sample using the model to analyze two hypothetical beach management policy scenarios illustrates different welfare impacts across groups

the effects of market organization on conspiracies in restraint of trade abstract mindful of the market structure conduct performance paradigm fundamental to industrial organization research this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance we compare posted offer markets where sellers but not buyers are all conspiratorial opportunities with observations from three control groups 1 posted offer markets without conspiratorial opportunities 2 double auction markets with conspiratorial opportunities and 3 posted offer markets with true single seller monopolists the basic conclusions generated by our experimental design are 1 seller conspiracies in posted offer markets tend to raise prices but not profits relative to similarly organized markets without conspiracies 2 posted offer conspiracies tend to generate higher prices but not profits than double auction conspiracies and 3 posted offer monopolies tend to generate higher profits but not prices then posted offer conspiracies

nonlinear expectations in speculative markets evidence from the ecb survey of professional forecasters chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets in general this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups this paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics the empirical results are based on a new data set from the european central bank survey of professional forecasters on oil price expectations in particular we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment

combining revealed and stated preferences consistency tests and their interpretations this article models the recreation demand for iowa wetlands combining survey data on both actual usage patterns i e revealed preferences rps and anticipated changes to those patterns under hypothetical increases in trip costs i e stated preferences sps we formulate and test specific hypotheses concerning potential sources of bias in each approach and discuss what can be learned about the validity of the models from such tests

incomplete information and ideological explanations of platform divergence one of the paradoxes of formal spatial voting models is the robustness of the theoretical result that candidates will converge toward centrists positions and the empirical observation of persistent policy divergence of candidates a solution is that candidates are ideological have policy preferences when candidates have policy preferences and incomplete information about voter preferences then platform divergence is theoretically predicted experimental tests of the ideological model are presented it is shown that platform divergence is significant when candidates are ideological and have incomplete information about voter preferences however candidate positions are more convergent on average than the theory predicts suggesting that subjects value winning independently of the expected payment

existence and computation of mixed strategy nash equilibrium for 3 firms location problem location problems of firms on a closed interval were introduced by hotelling 3 and later investigated by eaton lipsey 2 firms sell a homogeneous product at a fixed price customers distributed along the interval buy one unit each from the firm nearest to them and firms aim to maximize the number of their customers it is well known that where the customers are evenly distributed along the interval and the number of firms is other than 3 the location problem has a pure strategy nash equilibrium see 2 the case of 3 firms is peculiar in that no pure strategy nash equilibrium exists for in any situation one of the extreme firms not located between the other two can increase its revenue by either moving towards or away from the other two firms the existence of mixed strategies is not obvious because the payoff functions are discontinuous whenever two or more firms are located at the same point in a recent paper dasgupta and maskin 1 investigate a class of games all derived from economic problems and all with some discontinuities in their payoff functions they demonstrate that the discontinuities in the payoff functions do not prevent the existence of mixed strategies nash equilibria in the games investigated in particular location problems of the type described earlier have such weak discontinuities and hence possess a mixed strategy nash equilibrium although their proof is constructive offering a method of approaching these equilibria as a limit of equilibria of finite games the equations involved very quickly become unmanageable in this note we compute a mixed strategy nash equilibrium for the 3 firms location problem let the customers be evenly distributed along 0 1 then a mixed strategy is a probability measure over 0 1 the symmetry of the problem suggests that the solution will be doubly symmetric in that all firms choose the same mixed strategy and that this strategy is symmetric around symmetric locations are given the same probabilities dasgupta and maskin confine their analysis to doubly symmetric solutions and prove that the strategies in any doubly symmetric equilibrium are atomless given the symmetric nature of the game and following the analysis of dasgupta and maskin we shall confine ourselves here to such doubly sym

the value to a firm of its rival learning abstract in price competition a firm f reduces its rival s r learning about r s cost in quantity price competition f wants r not to learn about f s cost i show that in quantity competition f wants r not to learn about r s cost

third parties in equilibrium under standard assumptions equilibria with three parties normally do not exist in spatial models of electoral competition in this paper i show that such equilibria are possible if it is assumed that voters are uncertain about the exact policies parties will adopt once elected substantive predictions can be derived from the model explaining some features of three party competition first the least risk party will always take the most moderate position second this position is also winning third the two riskier parties are always on opposite sides of the median voter and also of the moderate party

the nature of equilibrium in a location model models of location are appropriate in a number of contexts in economics and political science for example firms choose where to position stores and which of a spectrum of goods to produce and politicians select the nature of their platforms in such models it is natural to look for a collection of locations with the property that the location of each individual is optimal given the positions of all other individuals however the pure strategy nash equilibrium provides a solution which is both incomplete and unsatisfactory incomplete because in many cases no such equilibrium exists unsatisfactory because even when it does exist it may not be robust to the specification of the model

a laboratory study of advertising and price competition abstract we use a laboratory experiment to study advertising and pricing behavior in a market where consumers differ in price sensitivity equilibrium in this market entails variation in the number of firms advertising and price dispersion in advertised prices we vary the cost to advertise as well as varying the number of competing firms theory predicts that advertising costs act as a facilitating device higher costs increase firm profits at the expense of consumers we find that higher advertising costs decrease demand for advertising and raise advertised prices as predicted further this comes at the expense of consumers however advertising strategies are more aggressive than theory predicts with the result that firm profits do not increase

improving environmental valuation estimates through consistent use of revealed and stated preference information abstract environmental valuation data from stated and revealed preference methods are integrated into a unified model of preferences for environmental quality improvement that identifies the use and nonuse components of the total value estimate this articulates clearly what parts of the total value estimate come from each type of data and permits tests of whether estimated preferences satisfy weak complementarity between the environmental good of interest and related private goods the statistical advantages of using more information for the valuation problem are exploited while retaining flexibility to identify value estimates from any individual method of analysis

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

symmetric zero sum games with only asymmetric equilibria abstract we know that a two player symmetric zero sum games with non empty equilibrium sets always admit symmetric equilibria and that b two player and multiplayer symmetric non zero sum games might have only asymmetric equilibria fey 2012 but what about multiplayer symmetric zero sum games this paper shows that these games might also have only asymmetric equilibria one of the examples employed to illustrate this point is the three candidate version of the popular hotelling downs model of electoral competition this demonstrates that symmetric games with only asymmetric equilibria are not technical paradoxes but are integrated in economics and political science literature for quite a while

electoral competition with third party entry in the lab abstract electoral competition between two vote share maximizing candidates in the context of the unidimensional spatial model leads to platform convergence both candidates end up proposing the ideal policy of the median voter downs 1957 palfrey 1984 famously argued that if third candidate entry is expected after the two main candidates choose their platforms the unique equilibrium is such that the two main candidates locate substantially far from each other by conducting a laboratory experiment we put this popular idea to test for the first time we allow entry to take place with four different probabilities and find that indeed the degree of polarization of the two main candidates platforms increases as third candidate entry becomes more likely to occur providing strong evidence in support of palfrey 1984 s formal results and underlying intuition

combining revealed preference data with stated preference data a latent class approach a substantial literature exists combining data from revealed preference rp and stated preference sp sources aimed either at testing for the convergent validity of the two approaches used in nonmarket valuation or as a means of drawing on their relative strengths to improve the ultimate estimates of value in doing so it is assumed that convergence of the two elicitation approaches is an all or nothing proposition i e the rp and sp data are either consistent with each other or they are not the purpose of this paper is to propose an alternative framework that allows for possible divergence among individuals in terms the consistency between their rp and sp responses in particular we suggest the use of a latent class approach to segment the population into two groups the first group has rp and sp responses that are internally consistent while the remaining group exhibits some form of inconsistent preferences an em algorithm is employed in an empirical application that draws on the alberta and saskatchewan moose hunting data sets used in earlier combined rp and sp exercises the empirical results suggest that somewhere between one third and one half the sample exhibits consistent preferences we also examine differences in welfare estimates drawn from the two classes

the east end the west end and king s cross on clustering in the four player hotelling game nicolaas j vriend i introduction despite the popularity of simple location models in industrial economics and voting theory in the tradition following hotelling 1929 and despite the recent rise of the experimental method in economics there have been only few experimental tests of such models brown kruse et al 1993 and brown kruse and schenk 1999 study models with elastic demand while collins and sherstyuk 2000 focus on the simpler case which we address too where demand is inelastic collins and sherstyuk implement a model with three agents who choose locations on a line segment with a uniform density of consumers who due to the assumption of inelastic demand can also be seen as voters with one vote each it is well known that this game has no pure strategy equilibrium see eaton and lipsey 1975 normalizing the line segment to the unit interval the unique mixed strategy equilibrium prescribes uniform randomization over the middle two quarters for all firms see shaked 1982 as it is a well established fact that experimental subjects have difficulties in randomizing see for example rapoport and budescu 1997 it is not very surprising that collins and sherstyuk do not find strong support for the equilibrium hypothesis their empirical distribution of choices is m shaped and has a considerably larger support than the equilibrium distribution in this study we analyze the case of four agents with uniform consumer density and inelastic demand as the equilibrium of this case implies that two firms locate at the edge of the first and second quarters and the other two at the edge of the third and fourth quarters this setup seems ideal for the investigation of various matters first there is no other number of agents where the equilibrium prediction has a better chance to be valid 1 with three competitors the unique symmetric equilibrium is mixed with five the unique equilibrium configuration is asymmetric and implies unequal payoffs and with six and more agents the equilibrium configurations cease to be unique thus only the two and the four agent cases yield unique pure and symmetric equilibrium configurations that give identical payoffs to all agents second the equilibrium in the four agent case has a property that makes it interesting from a behavioral and empirical point of view not only the focal midpoint is empty but the whole middle segment of the linear city is empty as well that is notwithstanding the nice theoretical properties the equilibrium is not entirely intuitive and is also conflicting with casual empirical evidence there are no cities without shops in the center nor are there democracies without parties located in the political middle ground the picture we will discern in our experimental data can be summarized in the following experimental result in the four seller case the equilibrium prediction is of substantial but limited help about one third of all choices are clustered around the equilibrium locations but in no session do we observe convergence to equilibrium at the same time the focal midpoint exerts a considerable attraction with almost 10 of all choices clustered around it consumers profit from this considerably in the form of lower transportation costs the remainder of the article is organized as follows in section ii we give a theoretical account of the model we implement in section iii we present the experimental design in section iv we analyze the results and explain the data and section v concludes ii theory consider a linear city in which four firms produce a good at constant marginal cost the price of the good is fixed due to some unmodeled features of the market consequently costs can be normalized to zero and the price to one to sell the goods the firms simultaneously choose a location on the unit interval 0 1

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

revealing additional dimensions of preference heterogeneity in a latent class mixed multinomial logit model latent class models offer an alternative perspective to the popular mixed logit form replacing the continuous distribution with a discrete distribution in which preference heterogeneity is captured by membership of distinct classes of utility description within each class preference homogeneity is usually assumed although interactions with observed contextual effects are permissible a natural extension of the fixed parameter latent class model is a random parameter latent class model which allows for another layer of preference heterogeneity within each class this article sets out the random parameter latent class model and illustrates its applications using a stated choice data set on alternative freight distribution attribute packages pivoted around a recent trip in australia

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

noncooperative bargaining and spatial competition the article develops a bargaining model of spatial competition sellers compete by choosing locations in a market region consumers face a cost to moving from one place to another the price of the good is determined as the perfect equilibrium of a bargaining game between seller and buyer in this game the buyer has the outside option to move to another seller and so the prices at all stores are interdependent existence of a location price equilibrium is established the outcome approaches the perfectly competitive one if the consumer s cost of traveling becomes negligible or if the number of sellers tends to infinity copyright 1989 by the econometric society

majority rule and election models abstract this paper surveys the theoretical work that has been done on majority rule and economic models of elections section i provides an overview of the topic section 2 reviews the most important results that have been obtained about majority rule as an abstract collective choice rule section 3 identifies some alternative inferences that can be made from those results section 4 covers some models that include additional features that are present in political institutions where majority rule is used section 5 concentrates on some alternative election models and equilibrium concepts section 6 focuses on election models with abstentions and or candidate uncertainty about voter behaviour section 7 compares and contrasts models where candidates are certain about what the voters choices will be contingent upon about the choices made by the candidates and models where they are uncertain about those choices section 8 closes the survey by identifying some emerging areas of research

elections with limited information a fulfilled expectations model using contemporaneous poll and endorsement data as information sources a one dimensional model of two candidate elections under asymmetric information is theoretically developed and experimentally tested candidates do not know voter utility functions and most voters are uninformed about candidate policy positions a fulfilled expectations equilibrium is defined using poll and endorsement data as information sources it is proved that with any positive fraction of informed voters any equilibrium extracts all available information all participants voters and candidates alike act as if they were fully informed for fixed candidate strategies a dynamic is given for convergence to voter equilibrium and this process is shown to imply a bandwagon effect

do antitrust laws facilitate collusion experimental evidence on costly communication in duopolies bertrand supergames with non binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets the experimental design consists of three treatments with different costs of communication zero cost low cost and high cost prices are found to be significantly higher when communication is costly moreover costly communication decreases the number of messages but more importantly it enhances the stability of collusive agreements mccutcheon 1997 presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices although our experimental results do not support the mechanism of mccutcheon s 1997 argument the findings point in the direction of her prediction that antitrust laws might work in the interest of firms

perceptions versus objective measures of environmental quality in combined revealed and stated preference models of environmental valuation abstract this study examines perceptions and objective attribute measures in discrete choice models of recreation site choice behavior these forms of attribute measurement are examined in individual and combined revealed preference stated preference models our results suggest that the model based on perceptions slightly outperforms the models based on objective attribute measures however issues such as the definition of the choice set and the measurement of welfare present significant challenges when using perceptions data

incumbent positioning as a determinant of strategic response to entry existing research has identified different firm characteristics that determine an incumbent s reaction toward market entrants this study widens the perspective from a firm s absolute attributes to its relative positioning within its competitive environment the hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation in each of the two theoretical models two incumbents initially choose very different quality and variety levels respectively and move closer to the center when faced by entry of a competitor from the vertical differentiation model we predict a stronger price reduction by high quality firms in our empirical analysis we are using a novel dataset of the high quality restaurant market in germany to test the theoretical findings while the hypotheses with respect to adjustments of prices and varieties are supported we do not find empirical evidence for the predicted quality adjustment

combining revealed and stated preference data to estimate the nonmarket value of ecological services an assessment of the state of the science this paper reviews the marketing transportation and environmental economics literature on the joint estimation of revealed preference rp and stated preference sp data the rp and sp approaches are first described with a focus on the strengths and weaknesses of each recognizing these strengths and weaknesses the potential gains from combining data are described a classification system for combined data that emphasizes the type of data combination and the econometric models used is proposed a methodological review of the literature is pursued based on this classification system examples from the environmental economics literature are highlighted a discussion of the advantages and disadvantages of each type of jointly estimated model is then presented suggestions for future research in particular opportunities for application of these models to environmental quality valuation are presented

crude awakening behind the surge in oil prices the first few months of 2008 saw crude oil prices breach one barrier after another they topped 100 a barrel for the first time on feb 19 then rose past 103 76 about two weeks later surpassing the previous inflation adjusted peak established in 1980 in april and early may oil prices pushed past 110 and then 120 a barrel and beyond these milestones reflect a new era in oil markets after the tumult of the early 1980s prices remained relatively tame for two decades in both real and nominal terms this long stretch of stability ended in 2004 when oil topped 40 a barrel for the first time then embarked on a steep climb that continued into this year modern economies run on oil so it s important to understand how recent years with their surging prices differ from the preceding two decades a good starting point is strong demand which has pushed world oil markets close to capacity new supplies haven t kept up with this demand fueling expectations that oil markets will remain tight for the foreseeable future a weakening dollar has put upward pressure on the price of a commodity that trades in the u s currency and because a large share of oil production takes place in politically unstable regions fears of supply disruptions loom over markets these factors have fed the steady sometimes swift rise of oil prices in recent years their persistence suggests the days of relatively cheap oil are over and the global economy faces a future of high energy prices how they play out will shape oil markets and determine prices for years to come

information and conspiracy in sealed bid auctions abstract this paper examines the allocative properties of the sealed bid institution when different aspects of the available information to bidders are considered specifically we examine a the effect on price determination in repeated sealed bid auctions of post auction revelation of losing bids and b the effect on price determination when conspiratorial discussions are allowed

market games as social dilemmas abstract in an experimental exchange market based on shapley and shubik 1977 two types of players with different preferences and endowments independently submit quantities of the goods they wish to exchange in this context although the nash equilibria of the game involve zero or minimum trade we obtain intense trade close to levels that maximize social welfare going a step forward we implement communication within pairs of traders from the same horizontal and opposite vertical sides of the market overall we find that horizontal communication tends to reduce bids whereas vertical communication has no effect

personalized pricing and advertising an asymmetric equilibrium analysis we study personalized price competition with costly advertising among n quality cost differentiated firms strategies involve mixing over both prices and whether to advertise in equilibrium only the top two firms advertise earning bertrand like profits welfare losses initially rise then fall with the ad cost with losses due to excessive advertising and sales by the wrong firm when firms are symmetric the symmetric equilibrium yields perverse comparative statics and is unstable our key results apply when demand is elastic when ad costs are heterogeneous and with noise in consumer tastes

combining discrete and continuous representations of preference heterogeneity a latent class approach unobserved preference heterogeneity has been widely recognized as a critical issue not only for modelling choice behaviour but also for policy analysis this paper examines alternative approaches for incorporating heterogeneity in recreational demand we apply a hybrid model combining discrete and continuous heterogeneity representations of tastes to capture the defining features of both the latent class and the random parameter logit specifications this model allows for the joint estimation of discrete segments and within segment heterogeneity providing a richer interpretation of preference heterogeneity a database of recreational trips to forest sites in mallorca has been used to compare the empirical performance of this hybrid approach with common specifications such as the conditional logit the random parameter logit and the latent class model

theory and experiments on spatial competition we present theoretical and experimental results on spatial competition between two firms firms choose locations simultaneously along a line representing a linear market identical consumers with non increasing demand functions are uniformly distributed along this line we solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor the set of equilibriums found includes both competitive and collusive payoffs in laboratory experiments in which the final period was unknown to the players in advance we observed both competitive and collusive outcomes non binding communication led to collusion

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

why do all the flights leave at 8 am competition and departure time differentiation in airline markets abstract theoretical models of spatial product differentiation indicate that firms face two opposing incentives 1 minimize differentiation in order to steal customers from competitors and 2 maximize differentiation in order to reduce price competition using data on u s airline departure times from 1975 when fares were regulated and 1986 when fares were not regulated we empirically estimate the effect of competition on differentiation we find a negative relationship in both periods in 1986 however reductions in exogenous scheduling constraints increase differentiation implying that firms may be differentiating their products where possible to reduce price competition this effect is not apparent in the 1975 data

advocacy and political convergence under preference uncertainty we study the formation of advocacy groups and how they can impact policy outcomes by revealing information about voters preferences to uninformed political candidates we conduct a laboratory experiment based on a two candidate spatial electoral competition setting where the policy preferences of voters are initially unknown and change over time in the control treatment candidates learn about the preferred policy of the median voter through the voting outcome of elections in the advocacy treatments voters can organize themselves into advocacy groups in order to reveal their policy preferences we find that voters often overcome the collective action problem of forming an advocacy group in fact we observe the formation of both informative advocacy groups which convey new information and uninformative advocacy groups which do not overall advocacy groups significantly speed up the convergence to the preferred policy of the median voter however advocacy does not lead to higher earnings as the gains from faster convergence are offset by the costs of group formation

predation asymmetric information and strategic behavior in the classroom an experimental approach to the teaching of industrial organization abstract classroom market experiments can complement the theoretical orientation of standard industrial organization courses this paper describes various experiments designed for such courses and presents details of a multi market game with entry and exit in this experiment incumbents have a cost advantage in their home markets and mobile firms decide which market to enter after entry decisions are made firms choose prices and quantities to offer for sale predatory pricing is possible with this setup and the experiment can be used to motivate discussions of monopoly competition entry and efficiency other classroom experiments with an industrial organization focus are surveyed

a joint latent class model combining likert scale preference statements with choice data to harvest preference heterogeneity in addition to choice questions revealed and stated choices preference surveys typically include other questions that provide information about preferences preference statement data include questions on the importance of different attributes of a good or the extent of agreement with a particular statement the intent of this paper is to model and jointly estimate preference heterogeneity using stated preference choice data and preference statement data the starting point for this analysis is the belief that the individual has preferences and both his her choices and preference statements are manifestations of those preferences our modeling contribution is linking the choice data and preference statement data in a latent class framework estimation is straightforward using the e m algorithm even though our model has hundreds of preference parameters our estimates demonstrate that 1 within a preference class the importance anglers associate with different green bay site characteristics is in accordance with their responses to the preference statements 2 estimated across class utility parameters for fishing green bay are affected by the preference statement data 3 estimated across class preference statement response probabilities are affected by the inclusion of the choice data and 4 both data sets influence the number of classes and the probability of belonging to a class as a function of the individual s type

using angler characteristics and attitudinal data to identify environmental preference classes a latent class model a latent class model of environmental preference groups is developed and estimated with only the answers to a set of attitudinal questions economists do not typically use this type of data in estimation group membership is latent unobserved the intent is to identify and characterize heterogeneity in the preferences for environmental amenities in terms of a small number of preference groups the application is to preferences over the fishing characteristics of green bay anglers answered a number of attitudinal questions including the importance of boat fees species catch rates and fish consumption advisories on site choice the results suggest that green bay anglers separate into a small number of distinct classes with varying preferences and willingness to pay for a pcb free green bay the probability that an angler belongs to each class is estimated as function of observable characteristics of the individual estimation is with the expectation maximization e m algorithm a technique new to environmental economics that can be used to do maximum likelihood estimation with incomplete information as explained a latent class model estimated with attitudinal data can be melded with a latent class choice model

spatial elections with endorsements and uninformed voters some laboratory experiments this paper presents a laboratory experiment designed to examine voting behavior within a spatial election framework when subjects are only endowed with endorsement information in the experiment subjects are assigned ideal points on a single issue dimension with the aid of an endorsement their task is to vote for the candidate whose position is closer to them the results show that under these conditions subjects are in fact playing a lottery where the odds of being correct is a function of spatial location the study points out that researchers should be aware of an information bias in models that use this particular information source

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

identifying demand parameters in the presence of unobservables a combined revealed and stated preference approach we develop a combined revealed and stated preference approach to identify discrete choice demand parameters in the presence of unobserved determinants of choice our approach overcomes difficulties associated with small choice sets multicollinearity and endogeneity that arise with revealed preference approaches to illustrate our framework we revisit two canadian moose hunting datasets our empirical results suggest the potential gains from fusing revealed and stated preference data but they also suggest its limitations when the data generating processes for the data sources differ

willingness to pay for quality improvements should revealed and stated preference data be combined abstract in this article we propose theoretically consistent welfare measurement of use and nonuse values for an improvement in environmental quality with revealed and stated preference data an analytical model based on the comparative static analysis of the variation function that describes the relationship between recreation demand and dichotomous choice contingent valuation models is estimated our results show that revealed and stated data should not be combined under the same assumed preference structure unless the two decisions imply the same change in behavior induced by the quality change in addition our results indicate scope effects in willingness to pay measures estimated with stated preference data

the opportunity for conspiracy in restraint of trade an experimental study a study is a limited exploration into the relationship between the opportunity for conspiracy in restraint of trade and the resulting market performance laboratory experimental methods are applied to separate competing theories the competitive model predicts well relative to cartel models nevertheless when measurements are taken relative to the performance of markets where conspiracies are not possible the effects of attempted conspiracies can be determined

on the nature of equilibria in a downsian model with candidate valence abstract i analyze mixed strategy equilibria in a downsian model with two office motivated candidates in which one candidate is endowed with a sufficiently large valence advantage that a voter might prefer this candidate even if the voter strictly prefers the other candidate s policies there is a discrete one dimensional policy space and the preferences of the median voter are uncertain i show that there is a range of moderate policies with no gaps that are optimal for the advantaged candidate there is also a range of liberal policies with no gaps and a corresponding range of conservative policies with no gaps that are optimal actions for the disadvantaged candidate the upper and lower bounds on these ranges of policies vary in predictable ways with the size of the advantaged candidate s advantage

spatial competition with three firms an experimental study the paper reports the results of an experimental study of the three firm location problem we compare the subjects behavior in the experiments with the symmetric mixed strategy nash equilibrium calculated by shaked 1982 overall the findings are consistent with the equilibrium prediction however the subjects locations were significantly more dispersed than predicted by the theory three alternative explanations of this phenomenon inexperience approximate equilibrium behavior and risk aversion are suggested and evaluated for their predictive power special attention is paid to risk aversion

an experimental study of price dispersion abstract we report an experiment examining a simple clearinghouse model that generates price dispersion according to this model price dispersion arises because of consumer heterogeneity some consumers are informed and simply buy from the firm offering the lowest price while the remaining consumers are captive and shop based on considerations other than price in our experiment we observe substantial and persistent price dispersion we find that as predicted an increase in the fraction of informed consumers leads to more competitive pricing for all consumers we also find as predicted that when more firms enter the market prices to informed consumers become more competitive while prices to captive customers become less competitive thus our experiment provides strong support for the model s comparative static predictions about how changes in market structure affect pricing

a difficulty with the travel cost method instead of observable prices of recreational visits travel cost method tcm re searchers are obliged to substitute researcher assigned visitation cost estimates i argue that visitation costs are inherently subjective but are ordinally measurable so long as the cost in creases with distance travelled it follows that traditional tcm yields only ordinally measur able welfare estimates the household produc tion function formulation of tcm resolves this problem only by imposing severe and un testable analytical restrictions tcm cannot serve as a stand alone technique for estimating recreation benefits rather it must be calibrated using information generated with fundamentally different methods jel q26

convergent validity of revealed and stated recreation behavior with quality change a comparison of multiple and single site demands we consider the convergent validity of several demand models using beach recreation data two models employ multiple site data a count data demand system model and the kuhn tucker demand system model we explore the role of existing variation in beach width in explaining trip choices and analyze a hypothetical 100 foot increase in beach width we compare these models to a single equation model where we jointly estimate revealed and stated preference trip data and focus on a hypothetical scenario considering a 100 foot increase in beach width in each case we develop estimates of the change in beach visits and the welfare impacts from the increase in width the trip change estimates from two of the three models are similar and convergent valid though the willingness to pay estimates differ in magnitude

retrospective voting an experimental study this essay reports on some experiments designed to study two candidate electoral competition when voters are retrospective voters the experiments consist of a sequence of elections in which subjects play the part of both voters and candidates in each election the incumbent adopts a policy position in a one dimensional policy space and voters are paid on the basis of single peaked utility function over that space for the position adopted by the incumbent neither voters nor candidates are informed of the voter utility functions and the only information received by the voter is the payoff he has received from the present and previous incumbent administrations despite the severely limited information of candidates and voters we find that generally candidates converge toward the median voter ideal point

democratic accountability and retrospective voting a laboratory experiment understanding the incentives of politicians requires understanding the nature of voting behavior i conduct a laboratory experiment to investigate whether voters focus on the problem of electoral selection or if they instead focus on electoral sanctioning if voters are forward looking but uncertain about politicians unobservable characteristics then it is rational to focus on selection but doing so undermines democratic accountability because selection renders sanctioning an empty threat in contrast to rational choice predictions the experimental results indicate a strong behavioral tendency to use a retrospective voting rule additional experiments support the interpretation that retrospective voting is a simple heuristic that voters use to cope with a cognitively difficult inference and decision problem and in addition suggest that voters have a preference for accountability the results pose a challenge for theories of electoral selection and voter learning and suggest new interpretations of empirical studies of economic and retrospective voting

modelling cognitively bounded rationality an evaluative taxonomy abstract since its origins in the 1950s the notion of bounded rationality has been incorporated into economic theory using an array of methodological approaches this paper presents a taxonomy by which these approaches can be categorized and understood evaluating each approach against a range of important criteria at a time when the foundations of economic theory are being re examined this paper should be viewed as a first step towards an assessment of the appropriate role that this more realistic view of cognition should take in different areas of economic theory and also of the desirable characteristics of models that incorporate it

on the profitability of collusion in location games in this note we take a first step towards the analysis of collusion in markets with spatial competition focusing on the case of pure location choices we find that collusion can only be profitable if a coalition contains more than half of all players this result holds for location games played in k dimensional euclidean space as long as consumers are distributed via atomless density functions for competition on the unit interval unit circle and unit square we also derive sufficient conditions for collusion to be profitable the results have immediate implications for mergers in spatial markets

mixed equilibria in runoff elections abstract we demonstrate that the hotelling downs model with runoff voting always admits symmetric mixed strategy equilibria for any even or odd number of office motivated candidates provided they are at least four in specific a we show that the game does not admit any symmetric atomless equilibrium b we fully characterize a class of symmetric atomic mixed equilibria which exist for any distribution of the voters ideal policies and c we argue that these equilibria are more robust than pure strategy equilibria to introduction of uncertainty about the voters preferences

on existence of location equilibria in the 3 firm hotelling problem it is well known that the hotelling model of spatial competition with three firms admits no equilibrium solution see chamberlin 1933 and lerner and singer 1937 apparently this non existence result is associated with the assumption that customers patronize the nearest firm now empirical evidence supports the idea that consumers do not necessarily choose to buy from the closest firm since they also take variables other than distance into account as these variables are often unobservable firms cease to be fully informed about consumers motivations consequently they can at best determine the shopping behavior of a particular customer up to a probability distribution the purpose of this note is to reconsider the 3 firm hotelling problem within a probabilistic framework it is shown that two different types of equilibria emerge centrally agglomerated equilibria in which the three firms are clustered and symmetric dispersed equilibria in which the three firms have distinct locations these equilibria are compared to the socially optimal locations

should countries control international profit shifting we present a fiscal competition model with two policy instruments the level of corporate taxation and the tightness of control of profit shifting by multinational firms mnf we show that a country may optimally decide not to monitor the mnf for two reasons firstly this country becomes an attractive location for mnf activity despite a high corporate tax secondly as the profits of the mnf become mobile the focus of tax competition is shifted taxation then influences both an mnf s location and the place where it declares its profits

the principle of minimum differentiation revisited return of the median voter we study a linear location model hotelling 1929 in which n with n 2 boundedly rational players follow noisy myopic best reply behavior we show through numerical and mathematical analysis that such players spend almost all the time clustered together near the center re establishing the principle of minimum differentiation that had been discredited by equilibrium analyses thus our analysis of the best response dynamics shows that when considering market dynamics as well as their policy and welfare implications it may be important to look beyond equilibrium analyses

efficient spatial competition abstract game theoretic models of spatial competition usually assume that firms set prices after their choices of locations rather than make this assumption this paper uses the core to model the competition between the firms two conditions are shown to be sufficient for efficient spatial competition the first is that the firms location choices satisfy a no externalities condition the second is that the second stage game satisfy a separable value condition namely that the value gains from trade can be created on a buyer by buyer basis this approach yields two further benefits first efficient location can be stable in situations with arbitrary distributions of buyers arbitrary willingness to pay functions and completely general location spaces second efficiency in location games can be shown to be related to the second welfare theorem

opec s kinked demand curve abstract asymmetric effects of oil prices on the macroeconomy imply multiple equilibrium prices for opec i estimate world demand for crude oil non opec supply and the effects of changes in price on world gdp using quarterly data covering 1973 to 2010 if opec s marginal cost is 20 bbl in 2014 iii and its discount rate is zero estimated equilibrium prices are 44 88 bbl multiple equilibria incent opec to tolerate unstable prices which because of the asymmetry lower world gdp both policies that increase responsiveness to price and policies that lower net demand to opec narrow and lower the range of equilibrium prices but the former are more effective at doing so opec responds to changes in the discount rate in the opposite way from competitive producers so policies that secure oil related property rights in opec countries and other policies that lower opec s discount rate narrow and lower the range of equilibrium prices monetary policy is more effective at accelerating or slowing macroeconomic activity the larger is opec s market share

tacit collusion in the presence of cyclical demand and endogenous capacity levels abstract we analyze tacit collusion in an industry characterized by cyclical demand and long run scale decisions firms face deterministic demand cycles and choose capacity levels prior to competing in prices our focus is on the nature of prices we find that two types of price wars may exist in one collusion can involve periods of mixed strategy price wars in the other consistent with the rotemberg and saloner 1986 definition of price wars we show that collusive prices can also become counter cyclical we also establish pricing patterns with respect to the relative prices in booms and recessions if the marginal cost of capacity is high enough holding current demand constant prices in the boom are generally lower than the prices in the recession this reverses the results of haltiwanger and harrington 1991 in contrast if the marginal cost of capacity is low enough then prices in the boom are generally higher than the prices in the recession for costs in an intermediate range numerical examples are calculated to show specific pricing patterns

communication in multilateral bargaining one of the most robust phenomena in the experimental literature on multilateral bargaining is the failure of proposers to extract equilibrium rents however all previous experiments have overlooked the fact that outside the lab committee members are allowed to and do engage in sometimes intense communication processes prior to voting on a proposal we conduct an experimental test of the baron ferejohn model in which we allow committee members to engage in unrestricted cheap talk communication before a proposal is submitted we find that proposers extract a significantly higher share of resources when communication is allowed communication increases proposer power through two channels first it mitigates the uncertainty surrounding the amount a coalition member is willing to accept second it allows potential coalition members to compete for a place in the coalition by lowering this stated price

primaries and candidate polarization behavioral theory and experimental evidence do primary elections cause candidates to take extreme polarized positions standard equilibrium analysis predicts full convergence to the median voter s position with complete information but behavioral game theory predicts divergence when players are policy motivated and have out of equilibrium beliefs theoretically i show that primary elections can cause greater extremism or moderation depending on the beliefs candidates and voters have about their opponents in a controlled incentivized experiment i find that candidates diverge substantially and that primaries have little effect on average positions voters employ a strategy that weeds out candidates who are either too moderate or too extreme which enhances ideological purity without increasing divergence the analysis highlights the importance of behavioral assumptions in understanding the effects of electoral institutions