the limits of explanation testing the internalization theory of the multinationial enterprise the paper explores the difficulties of testing the internalization approach in the modern theory of the multinational enterprise the structure of the theory is elaborated and the conclusion drawn that testing cannot occur at the most general theoretical level but that the theory requires careful restricting assumptions to be placed on it to allow rigorous testing several empirical circumstances would constitute refutation if they could be shown to hold however the use of unconventional cases or outliers does not constitute disproof more rigour is required in formulating and testing the theory but the current verdict on the theory must be not disproven

prices and the winner s curse we usually assume that increases in supply allocation by rationing and exclusion of potential buyers reduce prices but all these activities raise the expected price in an important set of cases when common value assets are sold furthermore when we make the assumptions needed to rule out these anomalies for symmetric buyers small asymmetries among the buyers necessarily cause the anomalies to reappear our results help explain rationing in initial public offerings and outcomes of spectrum auctions we illustrate our results in the wallet game and in another new game we introduce the maximum game

bidding behavior in descending and ascending auctions this research examines how individual differences and institutional practices influence consumer bidding in auctions bidders may be motivated by different goals e g thrill of winning the item with minimal attention to what they pay for it versus prudence winning the item at a price at or below its perceived value also innate or auctioneer induced differences may exist in the precision and salience of bidder cognitions about the item s value we report two studies on how these motivational and cognitive factors influence bids in descending and ascending auctions respectively each study also manipulated a situational variable wait time at each price step the two auctions realized different average prices for the same item set average bids were higher in the descending versus ascending auction in several study conditions in both auction formats bidders primed with thrill versus prudence bid higher but more precise and or salient values attenuated this goal effect among other results in the descending auction longer wait times elicited higher bids from bidders primed with thrill but not prudence in the ascending auction longer wait times produced lower bids for bidders primed with prudence but not thrill these findings on consumer bidding behavior have practical implications for auction design

the probability of sale and price premiums in withdrawn auctioned properties this paper examines the impact of the auction process of residential properties that whilst unsuccessful at auction sold subsequently the empirical analysis considers both the probability of sale and the premium of the subsequent sale price over the guide price reserve and opening bid the findings highlight that the final achieved sale price is influenced by key price variables revealed both prior to and during the auction itself factors such as auction participation the number of individual bidders and the number of bids are significant in a number of the alternative specifications

loss aversion and learning to bid bidding challenges learning theories even with the same bid experiences vary stochastically the same choice can result in either a gain or a loss in such an environment the question arises of how the nearly universally documented phenomenon of loss aversion affects the adaptive dynamics we analyse the impact of loss aversion in a simple auction using the experienced weighted attraction model of learning our experimental results suggest that individual learning dynamics are highly heterogeneous and affected by loss aversion to different degrees apart from that the experiment shows that loss aversion is not specific to rare decision making

multi unit demand auctions with synergies behavior in sealed bid versus ascending bid uniform price auctions abstract we construct a relatively simple model of bidding with synergies and solve it for both open outcry and sealed bid uniform price auctions the essential behavioral forces involved in these auctions are 1 a demand reduction force resulting from the monopsony power that bidders with multiple unit demands have when synergies are relatively inconsequential and 2 bidding above stand alone values in order to capture significant complementarities between units the latter creates a potential exposure problem as bidders may win only parts of a package and earn negative profits bidding outcomes are closer to equilibrium in clock compared to sealed bid auctions however there are substantial and systematic deviations from equilibrium with patterns of out of equilibrium play differing systematically between the two auction formats these patterns of out of equilibrium play are analyzed along with their effects on revenue and efficiency

testing for price anomalies in real estate auctions this paper reports on the results of an auction sale of 83 condominium apartment units in new jersey at the auction every unit was hammered down but unknown to the 2 348 registered bidders 40 of the sales fell through prices in the subsequent sale of condominium units in face to face negotiations resulted in identical units selling for 13 less than they fetched at auction and the discount was largest for those units hammered down early in the auction these results are inconsistent with the usual predictions from the theory of common value auctions and suggest that uninformed bidders in this auction may have been the subject of a winner s curse which generated considerable profit for the seller this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from ano this abstract was borrowed from another version of this item

the winner s curse experiments with buyers and with sellers this paper explores the winner s curse phenomena as it was studied experimentally by kagel and levin experiments with the winner s curse are complicated by the fact that subjects can lose money and the experimenter has only a limited means of collecting it from them thus subjects enjoy only limited liability which has theoretical implications for behavior in the kagel and levin experiments subjects were removed from the bidders competition after losses reached a predetermined value this experimental procedure has unknown implications for the results so ambiguity exists about whether the winner s curse was actually observed in this study their results were replicated in an environment in which subjects were not removed the case in which competitors are sellers is also studied bankruptcy cannot be a problem in sellers competition in both cases the winner s curse is observed thus the limited liability cannot be an explanation for the phenomenon reported by kagel and levin in addition the paper examines the bidding behavior of all individuals and shows that this behavior does not fit any of the tested theories either on the aggregate or individual level the winner s curse did not disappear over time during the conduct of the research

framing effects in public goods prospect theory and experimental evidence this paper studies both theoretically and experimentally frame effects in the context of a public good game in which players have to make a costly contribution either i to achieve or ii not to lose a non excludable monetary prize our protocol leads to public good provision not deterioration only if a certain contribution level is achieved since both frames differ with respect to the reference point we use prospect theory to derive testable predictions in particular prospect theory predicts more contribution in the second frame our evidence suggests that a subjects behavior is highly sensitive to frames and b the theoretical prediction is confirmed except when the threshold is low we also estimate the parameters which better suit our experimental evidence partly confirming previous results in the literature

credible spatial preemption it is often argued that incumbent firms may deter entry by preemptive investment in new goods we show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry once entrants are in an industry an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods such a reaction makes entry more attractive to a potential entrant the equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes as exit costs are low and as the competition between producers of the same good is more intense

winner s curse without overbidding abstract we report the results of a series of second price auction experiments where each bidder s signal is given by a normally distributed value plus a normally distributed error while bidders values differ in one treatment they are the same in another which allows for a direct test of the winner s curse irrespective of confounding factors bidders may also fall prey to a news curse when they do not sufficiently take into account that signals and errors are correlated we find that the effects of the winner s curse are mitigated by a news curse and loss or risk aversion

endogenous sequential entry in a spatial model in this paper we simulate a sequential entry of firms in a differentiated industry a la hotelling firms select a product location once for all they are aware of the unique price equilibrium that will take place after entry has occurred and take into account the behaviour of subsequent entrants it is found that early entrants will systematically locate around the centre but in such a way as not to induce later competitors to locate in between them location choices are also investigated as an instrument for entry deterrence which is feasible because of a fixed cost we identify several ranges of fixed cost for which entry is innocently deterred corresponding to a natural monopoly duopoly triopoly entry deterrence is then typically used to stretch the range of fixed cost for which a given number of firms can be sustained deterrence strategies are consistently such that firms locate at more regular intervals

is the linkage principle valid evidence from the field we present field evidence involving experienced bidders tha t supports the linkage principle specifically the prediction that in affiliat ed values auction environments the expected revenues generated at open outcry ascending bid english auctions are higher than those under other auction formats that reveal less information to participants using field data from a large seller of automobiles whi ch experimented with different selling formats we find that the seller s average r evenues were significantly higher under an english auction than under a dynamic internet auction that revealed far less information to bidders 1 introduction and motivation in an influential and classic paper milgrom and weber 1982 derived a powerful result and coined the term linkage principle to describe it simply put in auction environments having affiliated values the linkage principle state s that a seller can expect to increase revenues by providing more information to bidders both before and during the auction an implication of the linkage principle is that open outcry ascending price auctions often referred to as english auctions will on average earn more revenue for the seller than sealed bid auctions under which no information is released or similar auction formats that reveal less information to pot ential buyers according to perry and reny 1999 the linkage principle has come to be considered one of the fundamental lessons provided by auction theory well known exceptions to the linkage principle exist for example within independent private values environments the celebrated revenue equivalence theorem first outlined by vickrey 1961 1962 and then proven by riley and samuelson 1981 as well as myerson 1981 states that any auction format that has the same probability of assigning a winning bidder generates the same expected revenue to the seller in particular the revenue equivalence theorem predicts that the expected revenues earned by the seller at sealed bid auctions will be the same as those earned at english auctions at least when the distribution from which the values are drawn is the same for all potential buyers who are also risk neutral thus the presence of some degree of dependence or a common value component in the signals of potential buyers is critical to the validity of the linkage princi ple the affiliated values model is a generalization of the common value model developed by wilson 1977 under affiliation the conditional expectation of any monotonic function of the signals of all bidders is an increasing function of any individual bidder s own signal when the signals of bidders are dependent in this manner information released by the seller or information the seller provides concerning the bids made by other participants by virtue of the seller s choice of auction format helps bidders refine their beliefs concer ning the true value of the object for sale which in turn induces them to bid more aggressively than they would in the absence of such information while one can imagine circumstances under which the release of information could adversely affect the outcome at an auction for example if the seller released information concerning problems with the object for sale or when low bids by some bidders convince other bidders that the item is worth less than they originally thought the remarkable feature of the linkage principle i s that ex ante providing more information raises the expected revenues to the seller milgrom and weber 1982 have summarized the implications of the linkage principle succinctly honesty is the best policy

responding to public disclosure of corporate social irresponsibility in host countries information control and ownership control we extend the internalization literature by theorizing on how public disclosure of corporate social irresponsibility csi can damage reputation based firm specific advantages of multinational companies mncs and how foreign subsidiary governance can subsequently be used as strategic responses specifically we distinguish between two foreign subsidiary governance mechanisms information control and ownership control that the prior literature has often assumed operate in parallel and posit that they function in divergent directions in this context furthermore we explain how two host country characteristics press freedom and regulatory quality amplify the need for mncs to utilize different governance mechanisms as responses to csi disclosure

skills in the marketplace market efficiency social orientation and ability in a field based experiment abstract neoclassical economic theory predicts that markets will clear leaving little or no marginal gains from trade laboratory experiments have largely confirmed this prediction though the results of recent field experiments have been mixed especially in developing countries i create a multiround trading market in uganda to explore the efficiency of trading and test whether traders personal traits are associated with market efficiency and individual bargaining success to test the effects of individual traits i utilize data on measures of the traders human and physical capital risk and time preferences and social orientation specifically pro and antisocial behavior and aggression i find that the buyers and sellers relative levels of social orientation and human capital are associated with levels of market efficiency within rounds measures of social orientation however are less associated with individual success i also find that rents obtained in the experiment are strongly associated with the wealth levels of participants two years later but this association is limited to those who were randomly assigned to be buyers in the experiment i present evidence that this association is driven by greater buyer bargaining ability

a test that discriminates between two models of the dutch first auction non isomorphism abstract previous experiments reject the hypothesis that the dutch and first auctions are isomorphic two alternatives to the standard normal form analysis of the dutch auction are formalized 1 bidders violate bayes rule 2 bidders experience a utility of suspense that is additive with the utility of monetary reward paired comparisons of bidding behavior between groups in which the treatment is to triple the payoff of the baseline group yields no significant effect of this treatment we therefore reject the utility of suspense model

are firm specific advantages location specific too much of the research on the role of firm specific advantages on firms subsidiary ownership preferences has been undertaken in the context of advanced country multinationals specifically u s mncs research has found that u s firms derive ownership advantages from their size experience and technological and marketing superiority perhaps having operated in the most developed and sophisticated home market many u s firms generate unique skills that give them absolute advantages over firms in almost all foreign host locations developing country mncs do not have absolute ownership advantages similar to those of the u s firms the relevance of a particular firm specific characteristic for a developing country mnc may be contingent not only upon the home country characteristics as in the case of u s mncs but also upon host country characteristics this study investigates the subsidiary ownership preferences among korean mncs and finds that the influence of three firm specific advantages technological intensity product differentiation and capital intensity on subsidiary ownership levels is contingent upon whether the subsidiary is located in a relatively less developed or a more developed country as compared to the home country although some authors have suggested that the influence of firm specific advantages may be contingent upon the characteristics of both home and host country locations empirical investigations to this effect have been nonexistent

the multinational firm direct investment is incorporated into a simple general equilibrium model of international trade the analysis focuses on an attempt to endogenize the internalization decision it is argued that a reasonable approach assumes that arm s length contracts must be simple so that complex arrangements require internalization the model relates direct investment to the degree of underlying uncertainty and to fundamental trade determinants such as relative factor endowments the behavior of the model contrasts sharply with that of the markusen helpman model which takes internalization for granted

foreign direct investment and investment under uncertainty we show that in uncertain environments ownership and internalization advantages may be negatively rather than positively associated with fdi this reversal from extant theory occurs because ownership advantages often serve to make fdi delayable while internalization advantages often serve to make it less reversible when fdi becomes either more delayable or less reversible it is less likely to occur at a point in time our approach enriches the who where and why explanations offered by current fdi theory to incorporate the question of when

the dynamic annihilation of a rational competitive fringe by a low cost dominant firm abstract a low cost dominant firm will drive all competitive fringe firms out of the market if all firms have rational expectations however the dominant firm will not predate price below marginal cost since a dominant firm will not drive out fringe firms if they have myopic expectations it may be in the dominant firm s best interests to inform the fringe the effects of governmental intervention on the optimal path and welfare are presented

the shill bidding effect versus the linkage principle abstract the analysis of second price auctions with externalities is utterly modified if the seller is unable to commit not to participate in the mechanism for the general symmetric model introduced by milgrom and weber p milgrom r weber a theory of auctions and competitive bidding econometrica 50 1982 1089 1122 we characterize the full set of separating equilibria that are symmetric among buyers and with a strategic seller being able to bid in the same way as any buyer through a so called shill bidding activity the revenue ranking between first and second price auctions is different from the one arising in milgrom and weber the benefits from the highlighted linkage principle are counterbalanced by the shill bidding effect

contestable markets under uncertainty in this article we present a model of a market which is ex post contestable we show that in a market characterized by uncertainty a firm will face a tradeoff between efficiency and flexibility and generally will make some precommitments to take advantage of ex ante technologies we show that in the face of potential entry the incumbent will increase his precommitments and in so doing will affect the probability of entry the degree of market contestability is therefore endogenously determined by the choice of precommitments the extent to which precommitments will be used to affect entry probabilities is shown to depend on the efficiency of ex ante production adjustment costs and the degree of uncertainty in particular we show that the market becomes more contestable as the relative efficiency of ex post production increases and as market conditions become more uncertain

location choice product proliferation and entry deterrence within a slightly modified version of hotelling s model we reconsider the claim that the threat of entry induces existing firms to produce a larger number of products than they would otherwise we show that entry deterrence although optimal need not be achieved through product proliferation in some cases the incumbent monopolist resorts to an entry deterring strategy based on location choice rather than product proliferation we also show that in some cases the number of products chosen by the incumbent facing the threat of entry is strictly greater than the minimum number required to deter entry

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

efficiency in auctions with private and common values an experimental study this discussion has resulted in a publication in the american economic review 2002 92 3 625 43 auctions are generally not efficient when the object s expected value depends on private and common value information we report a series of first price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders while some subjects fall prey to the winner s curse they weigh their private and common value information in roughly the same manner as rational bidders with observed efficiencies close to predicted levels increased competition and reduced uncertainty about the common value positively affect revenues and efficiency the public release of information about the common value also raises efficiency although less than predicted

theory experiment and the federal communications commission spectrum auctions abstract the fcc uses the simultaneous multi round auction sma to assign spectrum licenses congress mandated that the sma be compared to an auction that allows combinatorial bids we review the theoretical and experimental evidence relevant to the sma procedures and their inherent defects results from experiments evaluating the sma in comparison to a combinatorial auction designed by charles river and associates show that several of the sma rules hinder efficiency and create a trade off between efficiency and auction length the combinatorial auction outperforms the sma when license values are superadditive but requires more time to complete and is not robust

super experienced bidders in first price common value auctions rules of thumb nash equilibrium bidding and the winner s curse super experienced bidders have learned to overcome the winner s curse but still earn less than 50 of nash equilibrium profits subjects deviate from the complicated nash strategy employing piecew

a note on credible spatial entry deterrence abstract this note revisits the question of spatial entry deterrence to investigate the credibility of pre emption by crowding in a differentiated market judd rand j econ 16 1985 153 argues that pre emption by crowding is not a credible entry barrier because an incumbent monopolist has an ex post incentive to withdraw products in response to entry we demonstrate that pre emption by crowding may be a credible entry barrier if multiple potential entrants choose the timing of entry endogenously

on the existence of predatory pricing an experimental study of reputation and entry deterrence in the chain store game a single monopolist plays a sequence of eight periods against a series of different entrants there are two types of monopolists weak monopolists whose single period best response is to acquiesce after entry and strong monopolists whose dominant strategy is to fight entry data show high levels of predatory pricing defined as weak monopolists fighting all entrants in early periods both with and without experimenter induced strong monopolists we reject a number of predictions of the asymmetric information sequential equilibrium model of kreps and wilson 1982 and find important deviations from more general sequential equilibrium models as well

the effect of shill bidding upon prices experimental evidence this paper explores through a series of experiments the effect of shill bidding upon revenues and prices in auctions we study the practice of shill bidding in a common value framework our findings are consistent with the prediction that if bidders are aware of the possibility of seller participation in an auction profits will be reduced on average we also study factors that affect bidder and seller participation decisions shill bidding can alleviate the problem of the winner s curse by lowering the price and it can thus provide benefits to bidders

auction designs for allocating wind energy leases on the u s outer continentalshelf abstract the anticipated expansion of offshore wind energy in the u s has been the subject of considerable legislative effort the energy policy act epact of 2005 and the outer continental shelf lands act oscla detail the criteria the federal government must follow when allocating leases for offshore wind farms the bureau of ocean energy management boem provides primary federal oversight to offshore wind in federal waters and in 2009 they released their formal management guidelines going forward this research examines lease allocation methods boem may use as well as several promising alternatives through the lens of the mandated criteria set forth by oscla and the epact of 2005 we find significant variation between allocation methods in terms of how well they meet each of the criteria price based allocations will have difficulty in meeting criteria while also accounting for the immature status of the offshore wind energy industry instead a multiple factor approach which includes non monetary considerations may be a more appropriate way to balance federal mandates and industryneeds

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

entry deterrence and the free rider problem the public good aspect of entry prevention is examined in an industry characterized by an established oligopoly facing a potential entrant although incumbent firms act noncooperatively underinvestment in entry deterrence does not occur and in fact incumbents may find themselves in a pareto dominated arrangement in terms of profits by preventing entry

empirical testing of auction theory given the state of affairs in auction theory there is at least one model for instance to support any position one would care to take concerning the revenue of sealed bid vs open auctions it should not come as a surprise that a fair amount of empirical work in auctions is underway this paper reports the results of some recently completed research i first discuss papers in which the predictions being tested derive directly from the pure theory of auctions and then papers in which the predictions arise out of an application of auction theory to a related institution

an experimental study of precautionary bidding auctions often involve goods exhibiting a common knowledge ex post risk in such auctions precautionary bidding predicts that under expected utility dara bidders reduce their bids by more than the appropriate risk premium because the degree of riskiness of an auctioned good and bidders levels of risk aversion are difficult to observe in field settings we conduct experimental auctions that allow us to identify the precautionary premium directly we find strong evidence for precautionary bidding the effect is robust to changes in experimental design features our experiment provides the first empirical demonstration of precautionary motives in a strategic setting

market competition r d and firm profits in asymmetric oligopoly we investigate a cournot model with strategic r d investments wherein efficient low cost firms compete against less efficient high cost firms we findthat an increase in the number of high cost firms can stimulate r d by the low cost firms while it always reduces r d by the high cost firms more importantly this force can be strong enough to compensate for the loss that arises from more intense market competition the low cost firms profits may indeed increase with the number of high cost firms an implication of this result is far reaching as it gives low cost firms an incentive to help rather than harm high cost competitors we relate this implication to a practice known as open knowledge disclosure especially ford s strategy of disclosing its know how publicly and extensively at the beginning of the 20th century

equilibrium number of firms and economic welfare in a spatial price discrimination model abstract we examine welfare implications of the equilibrium number of entering firms in a spatial price discrimination model in contrast to salop salop s 1979 monopolistic competition with outside goods bell journal of economics 10 141 156 the equilibrium number of firms can be either excessive or insufficient from the normative viewpoint

information disclosure as a matching mechanism theory and evidence from a field experiment market outcomes depend on the quality of information available to its participants we measure the effect of information disclosure on market outcomes using a large scale field experiment that randomly discloses quality information in wholesale automobile auctions we argue that buyers in this market are horizontally differentiated across cars that are vertically ranked by quality this implies that information disclosure helps match heterogeneous buyers to cars of varying quality causing both good and bad news to increase competition and revenues the data confirm these hypotheses these findings have implications for the design of other markets including e commerce procurement auctions and labor markets jel c93 d44 d82 l15

a comparison of multiple unit all pay and winner pay auctions under incomplete information this article examines the properties of independent private value all pay and winner pay auctions when there are multiple units sold we study bidding behavior efficiency and revenue in a set of 23 experimental sessions our data show that the all pay auction and the winner pay auction are empirically revenue equivalent though both yield higher revenue than the risk neutral bayesian equilibrium our evidence also suggests that the winner pay auction is more likely to lead to a pareto efficient allocation than the all pay auction

the bright side of having an enemy conventional wisdom suggests that more intense competition will lower firms profits the authors show that this may not hold in a channel setting with exclusive retailers they find that a manufac

internalization advantage and subsidiary performance the role of business group affiliation and host country characteristics we extend internalization theory by examining the contingencies associated with market internalization and its impact on foreign subsidiary survival based on a sample of 6170 subsidiary year observations in 63 countries belonging to 292 mncs from korea during 1995 2013 we find that greater product and labor market internalization have weaker impacts on the survival of subsidiaries operating in countries with more developed institutional environments but stronger for subsidiaries of mncs affiliated with business groups the impact of business group affiliation is further dependent on host country institutional development and the diversification and size of the business group

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

a comparison of naive and experienced bidders in common value offer auctions a laboratory analysis laboratory economics experiments typically use financially motivated students as subjects an ongoing issue is whether this is an appropriate subject pool since the students are typically inexperienced in the types of decision making required of them in the lab this paper addresses this issue in the context of common value offer auctions as we compare the behaviour of experienced business executives in the construction contract industry experts with that of naive student subjects results of previous research of this sort have been equivocal in some cases experts make the same errors as novices in other cases they do not hogarth and reder i987 a series of sealed bid common value offer auctions in which bidders compete for the right to supply an item of unknown cost were conducted inherent to common value auctions cvas is an adverse selection problem which may result in below normal or negative profits the winner s curse experimental studies have documented the presence of the winner s curse with financially motivated student subjects in high price demand side auctions kagel et al i986 kagel and levin i986 the experiments reported here generalise these earlier studies from bid to offer auctions also in employing offer auctions we establish a setting with which our experts are familiar thus allowing their experience the best chance to manifest itself

a note on credible spatial preemption in an entry exit game i investigate how an incumbent firm deters entry by crowding the market even when the incumbent can withdraw its stores in response to entry in a two location model judd 1985 shows such spatial entry deterrence is not credible in contrast i demonstrate spatial preemption can be credibly employed in a circular city model if the incumbent can build its stores on sufficiently many locations and transportation costs are linear

sequential entry industry structure and welfare in this paper we reexamine the relationship between potential competition industry structure and welfare in a market subject to a sequential entry threat where firms can make quantity commitments and have access to a constant returns technology it is shown that provided entry is not blockaded the incumbent s will either prevent entry or allow all the potential entrants in furthermore actual entry may decrease but social welfare never goes down with more potential entrants nevertheless with a finite number of potential entrants policies which lower the cost of entry need not be beneficial in welfare terms

strengthening a weak rival for a fight abstract we provide a new model wherein firms of different productivities survive in an industry despite the threat of entry by high productivity firms we demonstrate that an efficient incumbent has a unilateral incentive to establish a relational contract softening price competition to strengthen its inefficient rival in a war of attrition that emerges post entry and raising the price of the inefficient firm in the acquisition market we show that this equilibrium gives rise to persistent performance differences market compression and stability in the identity of firms in the market moreover the relational contracting equilibrium is facilitated by strong anti trust laws

learning in common value auctions some initial observations abstract inexperienced bidders in first price common value auctions suffer from a winner s curse losing money on average with experience bidders approximate the nash equilibrium the mechanisms underlying this adjustment are 1 a market selection effect as the most aggressive bidders are less likely to return for subsequent sessions and 2 players who lose money bid less experiential learning and those who would have lost money had they won the auction with the high bidder s signal bid less observational learning

selection bias demographic effects and ability effects in common value auction experiments inexperienced women along with economics and business majors are much more susceptible to the winner s curse as are subjects with lower sat act scores there are strong selection effects in bid function estimates for inexperienced and experienced subjects due to bankruptcies and bidders who have lower earnings returning less frequently as experienced subjects these selection effects are not identified using standard econometric techniques but are identified through experimental treatment effects ignoring these selection effects leads to misleading estimates of learning

the study of international business a plea for a more interdisciplinary approach scholastic efforts to study and teach international business is entirely dependent on our capability to marshal and organise the necessary human and other assets so as to supply a range of end products which are acceptable to the academic community of which we are part our paymasters and the main purchasers of our products viz the business community of course the determinants of success of the practice and study of ib are interrelated and in our particular pursuit for excellence there is no unique or sure fire recipe for success but i observe that in an ever increasingly complex world of international business which is dominated by rapid and far reaching changes in technology and by environmental turbulence this is no less true of successful practitioners rarely in seeking to identify the reasons for business achievement is one able to find a single common denominator sometimes excellence is primarily based on innovatory ingenuity sometimes on the access to or control of key inputs or markets sometimes on aggressive or novel methods of advertising and marketing sometimes on super efficient capital budgeting sometimes on dynamic and imaginative entrepreneurship sometimes on the diversity of operational experiences and capabilities and sometimes on an unusual aptitude to manage human relationships but in most cases success is founded on some amalgam of these and it is the way in which these discrete though increasingly interdependent advantages are ombined with each other and with complementary assets in different countries and cultures which contemporary research suggests is the key competitive advantages of international firms call it what you will e g

weak entrants are welcome abstract this paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market suppose that the incumbent can deter entry of the weak firm but cannot deter entry of the strong firm by itself then the incumbent may allow entry of the weak firm and use it to alter the strong firm s entry decision the present paper formalizes this idea and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade liberalization the idea also explains why a dominant firm lets fringe firms be in the market

6 revenue effects and information processing in english common value auctions an experiment analyzing behavior in english common value auctions is reported english auctions raise more revenue than first price auctions only when bidders do not suffer from a strong winner s curse agents employ other bidders dropout prices along with their private information as nash bidding theory predicts however a simple and natural signal averaging rule which does not require recognizing the adverse selection effect of winning the auction better characterizes the data than the nash rule monte carlo simulations using fiml estimates of the signal averaging rule predict a number of data characteristics not directly employed in the estimation procedure copyright 1996 by american economic association

equilibria in open common value auctions abstract a sufficient condition for uniqueness of nash equilibrium in second price common value auctions is identified we establish that there exists a continuum of equilibria in irrevocable exit common value auctions for the case of two bidders we provide plausible sufficient conditions under which the expected seller revenue is maximized at the symmetric equilibrium an example in which the auctioneer s revenue at the symmetric equilibrium in a second price auction is strictly greater than the revenue at many asymmetric equilibria in the corresponding irrevocable exit auction is provided

an experimental analysis of auctions with interdependent valuations abstract we study experiments in an auction setting with interdependent valuation groups of three players receive private signals and then bid for a single indivisible item valuations for the item differ within groups and depend asymmetrically on a bidder s own and other bidders signals theoretically the english auction yields efficient allocations while other standard auction formats fail to do so consistent with equilibrium predictions we find that an english auction yields significantly more efficiency than a second price sealed bid auction we also study the seller s expected revenue and the bidders expected profits and find that the experimental results are close to the theoretical predictions

irrationality in english auctions abstract this paper explores the effects of a particular form of irrational behaviour by participating bidders in a common value english auction we allow bidders to update their expected valuation of the good as the current price increases assuming that their opponents always play the symmetric nash equilibrium when only one bidder adopts this type of behaviour it is ambiguous whether the final auction price is higher or lower than at the symmetric equilibrium however when both bidders behave irrationally the final auction price is never lower than the symmetric equilibrium provided bidders match their strategies

a note on countertrade contractual uncertainty and transaction governance in emerging economies this paper develops a conceptual framework for analyzing organizational responses to contractual uncertainty in the context of emerging economies elaborating on hennart s 1989 transaction cost rationale for countertrade we develop a typology of exchange and transaction governance pertinent to the study of emerging economies contract trust and hostage notwithstanding the traditional explanation based on foreign exchange shortage we argue that the persistence of international countertrade illustrates organizational remedies to institutional deficiency in transaction governance

quantal response and nonequilibrium beliefs explain overbidding in maximum value auctions we report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit qre in combination with different models about bidder beliefs cursed equilibrium level k and cognitive hierarchy there is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids the pattern of median bids in the data consists of a combination of overbidding with low signals and near value bidding with higher signals logit qre with heterogeneous bidders approximates this pattern combining qre with any of the other models of belief formation leads to a closer match with the data all the estimated models predict only small treatment effects across different versions of the game consistent with the data we also reanalyze an earlier dataset for the same game ivanov et al 2010 which exhibited much more overbidding and reach similar qualitative conclusions

hindsight foresight and insight an experimental study of a small market investment game with common and private values we experimentally test an endogenous timing investment model in which sub jects privately observe their cost of investing and a signal correlated with the common investment return subjects overinvest relative to nash we separately consider whether subjects draw inferences in hindsight and use foresight to delay profitable investment and learn from market activity in contrast to nash cursed equilibrium and level k predictions behavior hardly changes across our experimental treatments maximum likelihood estimates are inconsistent with belief based theories we offer an explanation in terms ofboundedly ratio nal rules of thumb based on insights about the game which provides a better fit than quantal response equilibrium jel c72 d82 d83 gil

nonlinear behavior in sealed bid first price auctions the extent to which the behavior of people is consistent with game theoretic principles is investigated in a first price sealed bid auction environment three linear rules of thumb with increasing complexity are used as benchmarks to gauge the accuracy of the constant relative risk aversion model crram in addition the crram is tested against the relaxation of the rational expectation hypothesis existing competitive bidding experiments cannot clearly distinguish between game theoretic models and linear markdown rules on an individual level within the parametric environments studied and reported in the experimental literature game theoretic solutions are linear over the range of private values in which bid functions are estimated in this study agents drew values from non uniform distributions as a result the game theoretic bidding behavior is nonlinear due to the nonlinearity special econometric and numerical techniques are applied to solve the model and obtain the estimates the crram exhibits good fit of the data the pseudo r2 is greater than 0 8 in 90 percent of the subjects the crram is more accurate than the markdown model mm and the simple ad hoc model simam but not as accurate as the sophisticated ad hoc model sop am the data also supports the relaxation of the rational expectation hypothesis and suggests that substantial increases in the predictive power of game theoretic models can be gained from improvements in the theory of belief formation

exclusionary vertical contracts with multiple entrants abstract this paper constructs a model of anticompetitive exclusive dealing in the presence of multiple entrants unlike the single entrant model in previous literature an entrant competes not only with the incumbent to deal with buyers but also with other entrants the competition among entrants then serves as a commitment such that low wholesale prices are offered to buyers when they deviate from exclusive contracts we argue that this commitment effect becomes a barrier to exclusive dealing and that the results differ drastically from the predictions of the single entrant framework

implementing efficient multi object auction institutions an experimental study of the performance of boundedly rational agents abstract we study three alternative implementations of the vickrey multi unit demand auction vickrey s original static sealed bid auction and two dynamic ausubel auctions with and without public dropout information reported during the auction although implemented by a weaker solution concept behavior in the dynamic vickrey auction with the public dropout information comes significantly closer to the theoretical prediction of sincere bidding bidding one s valuations than either the static vickrey auction or the dynamic auction without dropout information this suggests a possible tradeoff between the simplicity and transparency of a mechanism and the strength of its solution concept when agents are still learning and or when players are not fully rational drawing on results from related single unit and multi unit demand auctions and the results of a new single unit demand auction experiment we provide important insights into the behavioral mechanism underlying the superior performance of the ausubel auction with feedback information

how firms grow clustering as a dynamic model of internationalization this paper provides a methodology for identifying the dynamics of international firm expansion demonstrating systematic evidence of both toe in the water and concentrated bursts of internationalization by us multinational enterprises we use the methodology of statistical process control to analyze initial investments in host countries and develop a numerical measure of temporal clustering or bunching using this measure we identify two distinct patterns of growth whereas some firms cluster their investments over time others do not cluster their investments for firms that cluster three types of clustering strategy are identified concentrating hibernating and hybrid arguments based on internal firm architecture experience and learning are advanced to explain these findings

inexperienced and experienced players in an oligopolistic market game with minimal information we consider an oligopolistic market game in which the players are competing firms in the same market of a homogeneous consumption good the consumer side is represented by a fixed demand function the firms decide how much to produce of a perishable consumption good and they decide upon a number of information signals to be sent into the population in order to attract customers due to the minimal information provided the players do not have a well specified model of their environment given a simple mode of adaptive behavior which we showed in a previous paper explained the data relatively well our main objective here is to analyze whether experienced players behave differently to inexperienced players copyright 1999 by oxford university press

auction fever rising revenue in second price auction formats the prevalent term auction fever visualizes that ascending auctions inconsistent with theory are likely to provoke higher bids than one shot auctions to explore and isolate causes of auction fever experimentally we design four different strategy proof auction formats and order these according to expected rising bids based on pseudo endowment effect arguments psychological ownership and disparity between willingness to pay and willingness to accept observed revenues in the experiment in the four formats rank as expected if bidders have private uncertain values the private information of a bidder is the distribution of her value a control treatment supports our view that the traditional private certain values approach prevents auction fever in the laboratory another control treatment with a procurement auction relates the auction fever bids to bids in a one shot auction with real endowments we conclude that when bidders are uncertain about their valuations auctions that foster pseudo endowment may raise bids and revenues

an experimental investigation of the seller incentives in the epas emission trading auction the clean air act requires the epa to conduct annual auctions of emission allowances under the discriminative auction rules sellers with the lowest asking prices receive the highest bids this paper studies an inverted version of this auction in which buyers face the same incentives as sellers in the epa auction consistent with theoretical predictions buyers bid above their valuation auction outcomes are inefficient and increasing the number of buyers increases bids buyers facing human opponents compete more aggressively than the risk neutral prediction but bids do not differ systematically from this prediction when buyers face computerized nash robots copyright 1995 by american economic association

property rights and wireless license values abstract while extending the scope of spectrum property rights promotes efficiency such reforms are often deterred by equity concerns theoretically however the windfalls may be negative relaxing license restrictions may increase profits by allowing enhanced productivity yet liberalization across a class of licensees can reduce the expected profits by increasing competitiveness this article examines license value changes for regimes that decisively shift toward private property rights in radio spectrum by analyzing the average prices paid in international cellular phone license auctions during 1995 2001 this unique data set encompasses 1 365 licenses assigned by competitive bidding in 38 auctions held in 24 countries licenses awarded by regimes with more expansive spectrum property rights generated winning bids that were 61 percent lower adjusting for other factors this evidence reverses the equity argument against liberalization over the policy margin studied and is consistent with coase s view

first price common value auctions bidder behavior and the winner s curse first price common value auctions bidder behavior and the winners curse john h kagel dan levin raymond c battalio and donald j meyer experimental auction markets are characterized by a strong winner s curse in early auction periods as high bidders consistently lose money failing to account for the adverse selection problem inherent in winning the auction with experience and bankruptcy on the part of the worst offenders subjects earn positive average profits but these are far below nash equilibrium predictions as a sizable minority of bids exceed the expected value of the item conditional on having the highest estimate of value individual bidding behavior is explored to identify the mechanism whereby market outcomes no longer display the worst effects of the winner s curse i introduction numerous occurrences of the winner s curse have been reported in bidding for items of uncertain value resulting in below normal or even negative average profits for bidders the winner s curse results from bidders failure to account for the adverse selection problem inherent in winning auctions for items of uncertain value capen clapp and campbell 1971 claim that the winner s curse resulted in low profits for oil companies in the 1960s in bidding on offshore oil and gas leases regarding corporate takeovers and mergers roll 1986 proposes a hubris hypothesis acquiring firms generally fall prey to the winner s curse paying too much on average for their targets he claims that from the samples he has observed the hubris hypothesis explains merger data as well as tax factors synergy or inefficient target management cassing and douglas 1980 find that many baseball players in the free agency market have been overpaid on account of the winner s curse and dessauer 1981 reports a similar finding of overbidding in auctions for the book publishing rights based on these occurrences it appears that many agents are not fully cognizant of the intricacies involved with bidding on alternatives that have uncertain worth the winner s curse results from the fact that although bidders may hold unbiased estimates of the auctioned item s value this estimate can be overly optimistic given that participants bids are influenced by their estimates of value in other words the winner s curse results from an adverse selection problem that bidders fail to account for fully in submitting their bids the existence of a winner s curse implies a breakdown of rational expectations on the bidder s part as discussed by milgrom 1981 and identifies a market that is out of equilibrium a winner s curse need not result from bidding on items with uncertain value provided proper adjustments are made one adjustment to the adverse selection problem is to deflate the expected value of the item and hence the bid before any action is taken for example cox and isaac 1984 show that agents who maximize expected utility will revise their expectations downward and submit bids that are strictly less than the expected value conditional on the event of winning when agents behave in this fashion a winner s curse does not result in the sense of bidders paying more on average than the items are worth this paper focuses on sealed bid auctions for objects of uncertain value a market institution for which theoretical predictions and empirical evidence concerning a winner s curse are mixed current theoretical development excludes the possibility of bidders paying more on average than the items are worth yet some empirical evidence in the sale of oil tracts as seen in capen clapp and campbell 1971 lohrenz and dougherty 1983 and mead moseidjord and sorenson 1983 suggests that the winner s curse may be present a series of experiments is designed and conducted in order to answer the following empirical research questions does the winner s curse exist in this auction framework and if it does what is its duration its relation to agent experience in the market and its breadth of impact across agents

naturally occurring markets and exogenous laboratory experiments a case study of the winner s curse we examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain using common value auction theory as our guide we identify naturally occurring settings in which one can test the theory experienced agents bidding in familiar roles do not fall prey to the winner s curse yet experienced agents fall prey to the winner s curse when bidding in an unfamiliar role we conclude that the theory predicts field behaviour well when one is able to identify naturally occurring field counterparts to the key theoretical conditions

the potentials of a reverse auction in allocating subsidies for cost effective roof top photovoltaic system deployment abstract photovoltaic pv has developed to one of the most promising technologies for renewable electricity generation the austrian government currently provides subsidies for roof top pv systems through a constant administratively determined feed in tariff or an investment co funding in both subsidy schemes applications are approved on a first come first served basis there are concerns about i the selection of suitable roofs for pv systems and ii allocating subsidies among applicants to deploy roof top pv systems cost effectively thus we analyze the potentials of a simple discriminative first price reverse auction application scheme applicants define individually the required level of subsidy and those with the lowest request for subsidies are selected in an ex post analysis we evaluate the potentials of such a scheme in increasing power output and saving public spending for the federal state of vorarlberg in austria results indicate a potential increase of cumulated produced electricity between 15 and 18 in comparison to the current policy in addition a reverse auction based system would lead to savings of public spending per kwh between 20 and 41

strategic wholesale pricing in a supply chain with a potential entrant this paper develops an adverse selection model for a two stage supply chain with one supplier one retailer and a potential outside entrant supplier who makes a partially substitutable product the work is different from most research on entry deterrence that only considers a single stage model our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant we focus on a model where the entrant supplier will sell her product through the same incumbent retailer we derive the optimal decisions for each player and study the comparative statics of the equilibrium to investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier we also consider three alternative models with different channel structures when both suppliers sell their products directly when the entrant has another independent retailer and when the entrant sells her product directly through the comparison we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier

anomalies the winner s curse abstract next time that you find yourself a little short of cash for lunch try the following experiment in your class take a jar and fill it with coins noting the total value of the coins now a

can price competition dominate market segmentation this note analyses duopoly competition in a two stage location price game while allowing each firm to establish a couple of outlets both the circle and the line model of spatial competition are considered our main result is clear cut in equilibrium neither firm will take up the opportunity of opening two stores this is a warning that market segmentation i e competition from multiple outlets might not be attractive at all because it entails more intense price competition

problems and developments in the core theory of international business the established theory of international business is not without problems it is necessary to specify the key relationships between internalisation and market structure and between internalisation and competitive advantage more carefully this chapter attempts to clarify the former relationship by reference to the work of hymer and the latter by contrasting the nature of internalisation decisions with those building short run competitive advantage avenues of development of the theory include the integration of non traditional concepts and the reintegration of areas of research which have become divorced from core international business theory