the hyperinflation model of money demand revisited in this paper we propose a test of the hyperinflation model of money demand which is valid under any assumption concerning agents expectations subject only to the restriction that forecasting errors are stationary it is also demonstrated that highly efficient parameter estimates can be obtained and restrictions on them tested under the same weak assumption finally it is shown how these first stage estimates can be utilized to test the stronger assumption of rational expectations the arguments are illustrated by analysis of the classic data on european hyperinflations previously analyzed by cagan 1956 barro 1970 and abel dornbusch huizinga and marcus 1979 copyright 1991 by ohio state university press

money demand and seigniorage maximizing inflation conventional estimates of the seigniorage maximizing inflation rate often make use of the cagan form which implies a constant semielasticity of money demand with respect to inflation this paper shows that the elasticity of substitution in transactions between money and bonds determines how the inflation semielasticity of money demand changes as inflation rises allowing for a variable semielasticity estimates of seigniorage maximizing inflation for a panel of eleven high inflation countries are lower than those obtained by using the cagan form estimates based on the correct measure of the opportunity cost of money also differ sharply from those obtained when using conventional inflation measures copyright 1995 by ohio state university press

middlemen as guarantors of quality abstract we analyze an experience good model with producer moral hazard which is based on shapiro quarterly journal of economics 1983 98 659 679 we develop conditions under which a good will be sold through a middleman instead of being sold directly by the producer when selling costs may even be increased by the presence of middlemen middlemen help to alleviate the producer moral hazard problem by dropping a producer s good and lowering her future sales if the good is not of its claimed quality the middleman engages in this policing activity in order to maintain his own reputation as a seller of high quality goods

laboratory evidence on the effectiveness of corporate leniency programs the number of cartels detected in the united states and in europe has increased considerably since the introduction of corporate leniency programs in antitrust legislation it cannot however be ruled out that this apparent success results in part from increased cartel activity we explore the effects of corporate leniency programs on pricing and cartel activity by use of an experiment we find that in the lab i fewer cartels are established when a leniency program is in place and ii cartels that do exist are less successful in charging prices above the static nash equilibrium price and have lower survival rates

the effects of rent asymmetries in experimental auction markets abstract we report the results of twelve double auction market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium the proposition convergence bias that prices tend to approach the competitive equilibrium from above below when consumer surplus is greater less than producer surplus cannot be rejected we do however reject the proposition convergence symmetry that these convergence biases are of equal absolute magnitude excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

rules communication and collusion narrative evidence from the sugar institute case detailed notes on weekly meetings of the sugar refining cartel show how communication helps firms collude and so highlight the deficiencies in the current formal theory of collusion the sugar institute did not fix prices or output prices were increased by homogenizing business practices to make price cutting more transparent meetings were used to interpret and adapt the agreement coordinate on jointly profitable actions ensure unilateral actions were not misconstrued as cheating and determine whether cheating had occurred in contrast to established theories cheating did occur but sparked only limited retaliation partly due to the contractual relations with selling agents jel l13 l41 this paper reexamines the cartel problem by studying the private discussions within one cartel while we find much that is in accord with george j stigler s 1964 basic insight that firms would structure an agreement conscious of their later incentive to cheat on it we also uncover puzzles for established theory and identify elements that a richer theory should encompass especially regarding the role of communication in collusion our window into the inner workings of a cartel is a remarkable series of notes on the weekly meetings of the sugar institute this trade association was formed in december 1927 in the wake of several years of falling margins and excess capacity by 14 firms comprising nearly all the cane sugar refining capacity in the united states it operated until 1936 when the supreme court ruled its practices illegal among the top executives in regular attendance at the meetings was louis v place vice president of mccahan a midsize refinery in philadelphia place who was in charge of all activities of the company except production and raw sugar purchases wrote over 500 pages of single spaced detailed

the impact of group membership on cooperation and norm enforcement evidence using random assignment to real social groups due to incomplete contracts efficiency of an organization depends on willingness of individuals to take non selfish actions such as cooperating when there is no incentive to do so or punishing inefficient actions by others organizations also constitute a social boundary or group we investigate whether this social aspect of organizations has an important benefit fostering unselfish cooperation and norm enforcement within the group but also whether there is a dark side in the form of hostility between groups our experiment provides the first evidence free from the confounding effect of self selection into groups individuals are randomly assigned to different platoons during a four week period of officer training in the swiss army we conduct choice experiments simultaneous prisoner s dilemma games with and without third party punishment in week three random assignment significantly increases willingness to cooperate with fellow platoon members assignment does not lead to hostility in the sense of vindictive punishment of outsiders but does affect norm enforcement enhancing willingness to enforce a norm of cooperation towards fellow platoon members this suggests that the social aspect of organizations motivates efficient behavior even when ordinary incentives fail and helps to explain practices designed to foster social ties or group identification within an organization this abstract was borrowed from another version of this item

conspiracies and secret price discounts in the marketplace evidence from field experiments we explore collusion by using the tools of experimental economics in a naturally occurring marketplace we report that competitive price theory adequately organizes data in multilateral decentralized bargaining markets without conspiratorial opportunities when conspiratorial opportunities are allowed and contract prices are perfectly observed prices quantities are considerably above below competitive levels when sellers receive imperfect price signals outcomes are intermediate to those of competitive markets and collusive markets with full information finally experienced buyers serve as a catalyst to thwart attempts by sellers to engage in anticompetitive pricing in periods where experienced agents transact in the market average transaction prices are below those realized in periods where only inexperienced agents execute trades

contractual responses to the common pool prorationing of crude oil production this paper examines bargaining among firms to mitigate rent dissipation following the major oil discoveries of 1926 35 because of high bargaining costs firms chose prorationing instead of consolidation and unitization and success varied the analysis also shows that prorationing took the form it did because concession such as per well quotas were required to draw in small operations and the quotas led to predictable responses regarding rent dissipation prorationing despite its costs controlled total field production and costs conserved natural reservoir energies and lengthened field life when private agreements failed the parties successfully appealed for state enforcement since similar heterogeneities influnce regulations elsewhere in the economy detailed analysis of bargaining among firms is essential for insight into the emergence of various institutional forms 33 references 3 tables

fines leniency and rewards in antitrust this article reports results from an experiment studying how fines leniency and rewards for whistleblowers affect cartel formation and prices antitrust without leniency reduces cartel formation but increases cartel prices subjects use costly fines as punishments leniency improves antitrust by strengthening deterrence but stabilizes surviving cartels subjects appear to anticipate the lower postconviction prices after reports leniency with rewards prices fall at the competitive level overall our results suggest a strong cartel deterrence potential for well run leniency and reward schemes these findings may also be relevant for similar white collar organized crimes such as corruption and fraud

the effects of group composition in a strategic environment evidence from a field experiment abstract recent theoretical and empirical studies have explored the effect of group membership and identity on individual decision making this line of research highlights that economic models focusing on the individual as the sole entity in the decision making environment potentially miss critical features this study takes this literature in a new direction by overlaying a field experiment onto a setting where groups have arisen naturally our experimental laboratory is large open air markets where we are able to examine the effects of group membership on seller s collusive behavior as measured by prices and surplus allocations this permits us to explore strategic implications of group composition empirical results illustrate the importance of group composition on pricing decisions and show that deviations from nash equilibrium are crucially related to group membership

the effects of market practices in oligopolistic markets an experimental examination of the ethyl case this study reports on the performance of experimental markets characterized by industrial structure and practices similar to those at issue in the ethyl case the central question is whether price competition is affected by the practices of advanced notification of price changes and most favored nation contracts or is determined by industrial organization and concentration alone

money demand the cagan model and the inflation tax some latin american evidence this paper examines the demand for money under conditions of very high inflation in argentina bolivia brazil chi le and peru during the 1970s and 1980s the authors test whether the monetary and inflationary experiences of these countries can be adequately characterized by the cagan 1956 model using an econometric procedure that is not reliant on any particular assumpti on concerning expectations formation except that forecasting errors are stationary the authors also examine the importance of foreign asset substitution in domestic portfolios and the hypothesis that monetary policy was tantamount to maximization of the inflation tax revenue before testing the rational expectations hypothesis copyright 1993 by mit press

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

competitive behavior in market games evidence and theory we explore whether competitive outcomes arise in an experimental implementation of a market game introduced by shubik 1972 market games obtain pareto inferior strict nash equilibria in which some markets are closed we find that subjects do not coordinate on autarkic nash equilibria but favor more efficient nash equilibria in which all markets are open as the number of subjects participating in the market game increases the nash equilibrium they achieve approximates the associated walrasian equilibrium of the underlying economy motivated by these findings we investigate theoretically whether evolutionary forces lead to walrasian outcomes in market games we introduce a strong version of evolutionary stable strategies sess f orfinite populations our concept requires stability against deviations by coalitions of agents a small coalition of trading agents is sufficient for pareto improving trade to be generated in addition provided that agents lack market power nash equilibria corresponding to approximate competitive outcomes constitute the only approximate sess

the value of recommendations abstract many markets without repeated seller buyer relations feature third party monitors that sell recommendations we analyze the profit maximizing recommendation policies of such monitors in an infinitely repeated game with seller moral hazard and short lived consumers a monopolistic monitor with superior information about the seller s past effort decisions sells recommendations about the seller to consumers we show that the monitor has an incentive to make its recommendations hard to predict which in general leads to inefficient effort provision by the seller these results hold under perfect and imperfect monitoring and in a variety of informational setting when there are multiple competing sellers the conflict between the monitor s profit maximization objective and efficient effort provision is mitigated

money demand and exchange rate determination under hyperinflation conceptual issues and evidence from yugoslavia a modified monetary model of exchange rate determination is advanced and tested for the yugoslav hyperinflation of 1992 94 stating that the exchange rate is determined directly in the money market thus implying that private agents due to dollarization denominate their real money holdings in foreign currency empirical evidence supports the advanced model apart from the last seven months of the yugoslav hyperinflation the exact re present value model of the exchange rate is accepted while that of the price level is rejected for the whole period of hyperinflation the modified money demand schedule with money holdings denominated in foreign currency is nonlinear with decreasing semielasticity of money demand

optimal voting schemes with costly information acquisition a group of individuals with identical preferences must make a decision under uncertainty about which decision is best before the decision is made each agent can privately acquire a costly and imperfect signal we discuss how to design a mechanism for eliciting and aggregating the collected information so as to maximize ex ante social welfare we first show that of all mechanisms a sequential one is optimal and works as follows at random one agent at a time is selected to acquire information and report the resulting signal agents are informed of neither their position in the sequence nor of other reports acquiring information when called upon and reporting truthfully is an equilibrium we next characterize the ex ante optimal scheme among all ex post efficient mechanisms in this mechanism a decision is made when the precision of the posterior exceeds a cut off that decreases with each additional report the restriction to ex post efficiency is shown to be without loss when the available signals are sufficiently imprecise on the other hand ex post efficient mechanisms are shown to be suboptimal when the cost of information acquisition is sufficiently small

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

cagan s paradox and money demand in hyperinflation revisited at daily frequency using daily data the cagan money demand is estimated and accepted for the most severe portion of serbia s 1992 1993 hyperinflation i e its last 6 months an implication is that the public adjusted daily throughout this extreme period moreover the obtained semi elasticity estimates are by far lower than those previously found using monthly data sets consequently the daily estimates reject the longstanding cagan s paradox based on monthly studies by showing that the economy has been on the correct increasing side of the laffer curve almost through the end of hyperinflation this strongly supports the view that hyperinflation is triggered and driven all way through its end by the government s hunt for non decreasing seigniorage daily adjustments of public in hyperinflation can account for the difference between the results obtained at daily and monthly frequencies calling into question the latter some evidence is offered that the findings of this paper may hold for other hyperinflations

price controls and the behavior of auction markets an experimental examination price ceilings and price floors are common in all market systems the ancient greeks and hellenistic era egyptians are known to have utilized price controls see h michele p 272 and j p levy p 41 and numerous public policy questions today involve them apparently for as long as price controls have existed their effects have been debated for example diocletion s favorable view of his price ceilings was disputed by the religious philosopher lactantius who charged that the policy led to scarcity and low grade articles p 145

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

teaching tools a public goods experiment for the classroom teaching tools a public goods experiment for the classroom george stigler wrote in the american economic review twenty seven years ago that the typical student in an introductory college economics course would memorize a few facts diagrams and policy recommendations and ten years later be as untutored in economics as the day he entered the class 1963 657 and later in the journal of economic education stigler argued that economics belongs in everyone s education once we have learned how to teach it 1970 80 as we enter the nineties academic economists continue groping for methods and techniques that will improve the way in which principles courses are taught the proliferation of commercially available materials in the form of textbooks workbooks software telecourses e g economics usa and transparencies provides evidence of the increasing interest and expenditure aimed at improving the teaching of economics however there exists at least one very promising teaching technique that continues to see relatively limited action in the typical economics classroom while experimental economic methods have become quite familiar to academic economists as a legitimate and powerful research tool their usefulness for the economics classroom has not yet been generally recognized 1 in this article i describe a simple yet powerful public goods experiment for use in microeconomics or public finance courses since it is likely that many instructors in economics are reluctant to use experimental methods without sufficient preparation 2 enough detail on experiment administration and suggested post experiment discussion is provided to assist even the novice experimenter with getting started instructors interested in additional information on experimental economics or experiments for the classroom should consult the references listed in the concluding section i experiment description 3 a theoretical concept that introductory students often find hard to understand is the vertical summation of individual demand curves to obtain the market demand for a public good the typical student also fails to fully appreciate how a free rider can cause underinvestment in public goods the experiment outlined below provides a simple yet powerful technique to teach not only the vertical addition and the free rider problems but also an ideal way to construct a prisoner s dilemma game and discuss the resulting underinvestment in the public good students are placed into n teams where a team may be as few as one person each team is endowed with t tokens and must choose in each of the decision making rounds whether to invest these tokens in the private account or the group account the private account will pay the team 0 30 per token invested each round the group account will earn for the entire society 0 50 per token invested each round from the group account each team will then receive 0 50 g sub i n where g sub i equals the total number of tokens invested in the group account in round i by all n teams note that regardless of how many tokens any single team places into the group account all n teams receive the same payout from the group account teams must invest all t tokens in each round and tokens cannot carry over from one round to the next finally earnings from previous rounds are not allowed to be reinvested in the future ii example experiment assume a representative class of sixty students 4 assume the instructor divides the class into twenty teams n 20 of three students each each team is endowed with t 25 tokens per round the teams read the instructions overhead transparency while the instructor distributes to each team i the team record sheet and ii the team decision ballots one for each round 5 for each round once all the team ballots have been submitted the instructor sums the tokens invested in the group account and reports this number and the dollar payout per team to the entire class

the value of delegated quality control this paper studies the case in which a firm delegates quality control to an independent monitor in a repeated game consumers trust provides incentives to acquire information about whether the good is defective and withhold defective goods from sale if third party reports are observable to consumers delegation lessens the first and dispenses with the second moral hazard concern but also creates agency costs internal quality control is optimal only if trades are sufficiently frequent and consumer information is sufficiently precise this result holds in the presence of the possibility of collusion fully non verifiable presale information and economies of scale in external quality control

the classic european hyperinflations revisited testing the cagan model using a cointegrated var approach the cagan model of hyperinflation under rational expectations no bubbles and stationary velocity shocks has the implication that real balances cointegrate with money growth in a re examination of the classic european hyperinflations i find support for this cointegrating property which gives evidence against the assumption made in most previous studies that velocity shocks follow a random walk based on a cointegrated var model i reject statistically for four of the six hyperinflations the exact rational expectations cagan model but at the same time i find evidence of a substantial forward looking element in agents demand for real balances in the sense that a large part of the predictable movement in money growth is incorporated in agents demand for money

tacit collusion in auctions and conditions for its facilitation and prevention equilibrium selection in laboratory experimental markets the paper studies bidder behavior in simultaneous continuous ascending price auctions we design and implement a collusion incubator environment based on a type of public symmetrically folded and item aligned preferences tacit collusion develops quickly and reliably within the environment once tacit collusion developed it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game theoretic model the only successful remedy was a non public change in the preference of participants that destroyed the symmetrically folded and item aligned patterns of preferences creating head to head competition between two agents reminiscent of the concept of a maverick

the monetary model of the exchange rate under hyperinflation new encouraging evidence abstract this paper suggests a new method of testing the rational expectations version of the monetary model of the exchange rate under hyperinflation that takes into account the stochastic non stationarity of the data involved the method is applied to money and exchange rate data from the german 1921 1923 hyperinflation and the results are very supportive of the model

strategic certification and provision of quality we study the effect of the presence of a certification intermediary in an environment where information asymmetries are particularly severe the intermediary improves the information that buyers have about quality this in turn increases the incentives that the seller has to provide high quality goods efficiency is increased by the presence of the intermediary but quality is underprovided in equilibrium relative to full information the intermediary can implement the optimal policy in many ways the amount of information revealed ranges from full disclosure to partial noisy disclosure

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

the german hyperinflation and the demand for money revisited this paper shows that a remarkably well defined demand for real balances exists for the german hyperinflation episode including the final months which have previously been considered as outliers the authors econometric analysis exploits the theory of cointegration given the obvious nonstationarity of the data further they consider two likely sources of misspecification income variability and the necessity to distinguish between the high inflation and hyperinflation episodes copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a monopolistic market for information abstract we analyze a model where traders buy information from a monopolistic seller which is subsequently used in a speculative market in order to overcome the dilution in the value of information due to its leakage through informative prices the seller of information may prefer to sell noisier versions of the information he actually has moreover to obtain higher profits it is desirable for the seller to sell different signals to different traders so that the added noise realizations do not affect equilibrium prices one way of doing so which does not require discrimination is to sell identically distributed personalized signals to each of a large number of traders

repeated games with voluntary information purchase abstract we consider discounted repeated games in which players can voluntarily purchase information about the opponents actions at past stages information about a stage can be bought at a fixed but arbitrary cost opponents cannot observe the information purchase by a player for our main result we make the usual assumption that the dimension of the set fir of feasible and individually rational payoff vectors is equal to the number of players we show that if there are at least three players and each player has at least four actions then every payoff vector in the interior of the set fir can be achieved by a nash equilibrium of the discounted repeated game if the discount factor is sufficiently close to 1 therefore nearly efficient payoffs can be achieved even if the cost of monitoring is high we show that the same result holds if there are at least four players and at least three actions for each player finally we indicate how the construction can be extended to sequential equilibrium

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

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

collusion in procurement auctions an experimental examination bart j wilson i introduction questioning the value of efforts to enforce federal anticonspiracy laws raises spirited debate among antitrust economists although everyone recognizes the welfare costs of successful conspiracies commentators such as armentano 1990 and cohen and scheffman 1989 argue that conspiratorial arrangements are pervasively ineffective and thus that social resources spent prosecuting cob lusion are wasted others including marvel et al 1988 express more ambivalence about the seriousness of conspiracies as a social problem but believe that the government manages to detect only the most ineffective arrangements still other economists clearly believe in the effectiveness of current government efforts see e g werden 1989 and froeb et al 1993 ultimately the pervasiveness of conspiratorial behavior and the magnitude of the consequent damages are empirical issues however the illegality of collusion complicates the collection of relevant data tip offs or complaints frequently expose conspiracies but good reasons exist for suspecting that conspiracies detected in this fashion tend to be the least profitable a conspirator likely rats on co conspirators only if he or she is disenchanted with the scheme suggesting that the conspiracy is about to collapse anyway similarly suspect are conspiracies that are sufficiently clumsy to raise the protests of buyers the detection problem would be vastly simplified if conspiracies could be identified in the absence of a smoking gun posner 1969 argues that such explicit evidence of conspiratorial behavior is unnecessary because conspiring firms exhibit identifiable patterns of activity that are alone sufficient to determine illegality kuhlman 1969 and gallo 1977 go still further and advocate the continuous computerized monitoring of pricing and sales data to detect conspiracies however as marshall and muerer 1998 observe a potentially condemning defect of any attempt to detect collusion via behavior is that depending on underlying conditions virtually any suspect pattern of behavior can be generated as a noncollusive nash equilibrium identical prices for example are often cited as an indication of coordinated activity e g mund 1960 1 but in games such as the one modeled by anton and yao 1992 agents submit identical bids in a nash equilibrium in the absence of collusion furthermore some evidence from collusion cases prosecuted by the department of justice suggests that identical prices are rarely part of collusive arrangements except when the industry is not very concentrated comanor and schankerman 1976 market rotations a second pricing scheme that is typically cited as a suspect pattern may also be consistent with a subgame perfect noncooperative nash equilibrium zona 1986 for example identifies a number of approximate equilibria involving contract rotations when sellers have steeply increasing cost structures also lang and rosenthal 1991 characterize a noncooperative static equilibrium for a multiproduct contracting environment where sellers both divide the market and submit noncompetitively high bids in the market where they do not expect to win 2 still other pricing patterns are possibly suspect porter and zona 1993 report evidence of bid rigging in procurement auctions from the pattern of losing bids the intuition is that in a competitive environment bids should be correlated with costs when prices are fixed however this correlation breaks down this article reports a laboratory experiment designed to explore the relationship between suspect behavior and collusion we focus on coordinated behavior in procurement auctions a context where collusion is often suspected and has been frequently observed 4 two environments are examined a set cost regime that contains some features critical to standard government procurement auctions for goods and an endogenous cost regime which exhibits some critical elements of procurement bidding for construction contracts

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

a general measure of inflation tax revenues abstract a general measure of the revenues from the inflation tax and seignorage is presented which is correct across models previous measures seemingly dependent on specific policy assumptions can be seen as special cases of this unified measure

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

tax and subsidy incidence equivalence theories experimental evidence from competitive markets abstract a basic tenet in microeconomics is tax incidence equivalence which holds that the burden of a unit tax on buyers and sellers is independent of who actually pays the tax by contrast policymakers and the public often mistake statutory incidence for economic incidence using competitive laboratory markets i test both tax incidence equivalence and an analogous theorem for subsidies for sufficiently large markets the results show strong support for both theories there is little to no evidence even in the short run of the popular misperception that statutory incidence equals economic incidence in smaller markets in which competitive forces are weaker and relative bargaining strengths may play a role the evidence for tax incidence equivalence is weaker as minor price discrepancies may persist between markets

cooperation spillovers and price competition in experimental markets i introduction both competition and cooperation are important for the successful functioning of many economic systems for example firms compete in markets but they also cooperate with one another through arrangements such as research joint ventures lobbying cooperative marketing agreements and strategic alliances in this paper we use experiments to examine how competitive interactions affect agents propensity to cooperate we are interested in studying spillovers that may involve cooperation in one domain such as a research joint venture and competition in another such as in a market 1 cooperation could weaken competition perhaps promoting collusion or market competition could reduce incentives for non market cooperation these behavioral spillovers could go in either direction they are distinct from another type of spillover through knowledge externalities that occur in research and development r d when the innovator cannot fully appropriate the gains to innovation leading potentially to a socially inefficient level of research debondt 1996 2 as discussed below behavioral spillovers have been shown in experiments to increase cooperation in otherwise competitive environments for example through establishing cooperative precedents a large body of theoretical research has focused on firms cooperating in research joint ventures and how this impacts competition in output markets for example cooper and ross 2009 examine the mechanism by which agreements to cooperate in one market can have negative effects on competition in other markets even in situations when these markets are not linked via costs or demand cabral 2000 shows that product market prices are affected by r d agreements between firms caloghirou ioannides and vonortas 2003 lambertini poddar and sasaki 2003 and poyago theotoky 2007 also discuss the impact of forming research joint ventures on product markets and cartel formation 3 empirical work using field data has provided creative indirect evidence on the collusive potential of research joint ventures by exploiting natural policy experiments although the extent of this evidence is limited goeree and helland 2010 for example show that research joint ventures facilitate collusion because they became less popular following an enforcement policy change leniency that made collusion less attractive policy experiments such as these are often required since systematic collusion often goes undetected by authorities duso roller and seldeslachts 2010 also examine the link between research joint ventures and collusion using data from the u s national cooperation research act that granted certain research joint ventures milder antitrust scrutiny they find that horizontal research joint ventures lead to more collusion than vertical joint ventures our work provides complementary and more direct evidence since in the laboratory we can observe the level and sustainability of tacit and explicit collusion and can therefore circumvent the measurement and endogeneity issues that are often prevalent in field data the specific research goals of this study are the following first we wish to examine if agents take advantage of available gains from cooperation in the presence of payoff uncertainties that arise from stochastic innovation success second we are interested in learning if a behavioral spillover of cooperation can lead to collusion in markets or whether competition in markets reduces non market cooperation these notions of cooperation concern contributions to joint r d projects or collusion in price setting and are defined independently of any communication opportunities therefore our third goal is to determine how this interaction between cooperation and competition is affected by the introduction of non market communication opportunities finally we will measure the externalities from r d cooperation to non innovators in the market

collusion in private value ascending price auctions we investigate the effects of bid improvement rules and bidder value asymmetry on bidder collusion in experimental ascending price auctions without communication we find that the strict bid improvement rule and private values are not always sufficient to break collusion among well motivated bidders collusion still occurs as long as bidder gains from collusion are high

collusion as public monitoring becomes noisy experimental evidence this paper uses laboratory experiments to test the implications of the theory of repeated games on equilibrium payoffs and estimate strategies in an infinitely repeated prisoners dilemma game with imperfect public monitoring we find that subjects payoffs i decrease as noise increases and ii are lower than the theoretical maximum for low noise but exceed it for high noise under the assumption that the subjects strategy uses thresholds on the public signal for transition between cooperation and punishment states we find that the best fitting strategy simply compares the most recent public signal against a single threshold

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

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

some experimental testing of the cournot nash hypothesis in small group rivalry situations abstract this study parallels a previous study by friedman and hoggatt 1980 but uses more realistic information conditions in addition to confirming the central tendency results of friedman and hoggatt we find that in the three to six corporation range the number of corporations in the experiment seems to have no effect on the tendency to grope towards the cournot nash solution on the other hand it seems clear that convergence to cournot nash is more likely if the subjects are experienced and less likely the higher the cournot nash markup over unit cost overall there is a strong tendency to converge to cournot nash

the impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

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

tradable deficit permits efficient implementation of the stability pact in the european monetary union tradable deficit permits efficient implementation of the stability pact borrowing from the experience of environmental markets this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the european monetary union having chosen an aggregate target for the union and an initial distribution of permits emu countries could be allowed to trade rights to deficit creation the scheme exploits countries incentives to minimize their costs is transparent and flexible in accommodating idiosyncratic shocks and allows for adjustments in case of europe wide recessions in addition it need not treat all countries identically and can be designed to penalize countries with higher debt to gdp ratios finally the scheme rewards countries for reducing their deficit below the initial allowance lending credibility to the stability pact s goal of a balanced budget in the medium run alessandra casella

side communication yields efficiency of ascending auctions the two items case we analyze an ascending auction with anonymous item prices when there are two items that are substitutes this popular auction format entails increased opportunities for bidders to coordinate bids as the bidding process is longer and since bidders see the other bids and can respond to various signaling this has happened in many real auctions e g in the netherlands 3g telecom auction and in the fcc auctions in the us

honest certification and the threat of capture abstract this paper derives conditions under which reputation enables certifiers to resist capture these conditions alone have strong implications for the industrial organization of certification markets 1 honest certification requires high prices that may even exceed the static monopoly price 2 honest certification exhibits economies of scale and constitutes a natural monopoly 3 price competition tends to a monopolization the results derive from a general principle of reputation models that favors concentration this principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms

communication in repeated games with costly monitoring abstract we study repeated games with discounting where perfect monitoring is possible but costly it is shown that if players can make public announcements then every payoff vector which is an interior point in the set of feasible and individually rational payoffs can be implemented in a sequential equilibrium of the repeated game when the discount factor is high enough thus efficiency can be approximated even when the cost of monitoring is high provided that the discount factor is high enough

the folk theorem for repeated games with observation costs abstract the folk theorem literature has been relaxing the assumption on how much players know about each other s past action here we consider a general model where players can buy precise information every period each player decides whether to pay a cost to accurately observe the actions chosen by other players in the previous period when a player does not pay the cost he obtains only imperfect private signals observational decisions are unobservable to others known strategies such as trigger strategies do not work since they fail to motivate players to pay for information this paper shows that the folk theorem holds for any level of observation costs unlike existing folk theorems with private monitoring ours imposes virtually no restriction on the nature of costless imperfect signals the theorem does not use explicit or costless communication thereby having implications on antitrust laws that rely on evidence of explicit communication the main message is that accurate observation alone however costly enables efficient cooperation in general repeated games

collusion facilitating and collusion breaking power of simultaneous ascending and descending price auctions this article demonstrates that a robust tacit collusion evolves quickly in a collusion incubator environment but is destroyed by the simultaneous descending price auction theories of collusion producing behavior along with the detail of the states on which strategies are conditioned lead to a deeper understanding of how tacit collusion evolves and its necessary conditions these theories explain how the descending price auction destroys the collusion the experiments proceed by conducting simultaneous ascending price auctions in the collusion incubator then once the tacit collusion developed changing to the descending auction the change moved prices from collusive levels to near competitive levels

simple reputation systems we develop a model of simple reputation systems that monitor and publish information about the behavior of sellers in a search market with asymmetric information the reputations created influence the equilibrium search patterns of buyers and thus provide for marketbased punishment of bad behavior we show that a reputation system that rewards honesty can enhance welfare by allowing good sellers to truthfully signal their type however the same system can be prone to strategic manipulation by sellers who always have low quality products in that case we show that an alternative system which assigns reputations based on product quality rather than honesty can be superior