the shadow of death analysing the pre exit productivity of portuguese manufacturing firms the pre exiting productivity profile of mature firms relative to survivors is examined along with an evaluation of how productivity affects the probability of exit along various dimensions an empirical approach based on an unbalanced panel of portuguese manufacturing firms covering a 10 year period is used the findings confirm that market selection forces low productivity firms to exit but there is also evidence that a sizeable portion of low productivity firms do not shut down conversely there is a non negligible fraction of high productivity firms that do actually close consistent with some key theoretical predictions our analysis reveals that exiting firms have a falling productivity level over a number of years prior to exit finally the results from the survival model show that both small firms and ones with low productivity are relatively much more likely to exit the market industry and macro environment are also found to have a non negligible role on the exit of mature firms

laboratory tests of equilibrium predictions with disequilibrium data we examine a common practice used within previous studies of laboratory markets testing equilibrium models using some data from markets that have not reached an equilibrium we examine the effect of this practice when it is applied to some laboratory markets where an appreciable number of them eventually satisfied an operational definition of an equilibrium our data suggest that for our markets significantly different equilibrium test results would be obtained when using all data available in market periods analysed in previous studies rather than using only equilibrium data for our markets choices made in disequilibrium are quite different from those in equilibrium this paper is primarily concerned with examining one common practice used in previous studies of laboratory markets this practice is testing equilibrium models using some data from markets that have not reached an equilibrium the data set used typically consists of all available laboratory data from the last period an average of the last few periods an average of all periods or from the nth period for some fixed n i know of no attempt at least formally to assure all data were from markets in equilibrium markets where market choices have stabilized recently some laboratory markets were run where an appreciable number of them eventually satisfied an operational definition of an equilibrium could the use of disequilibrium data significantly affect the results of tests we might make of some equilibrium models for these laboratory markets this practice would be desirable if the disequilibrium data provided a useful estimate of the behaviour that would have been observed if an equilibrium had been obtained on the other hand if some disequilibrium behaviour is qualitatively different from the behaviour that would be observed in an equilibrium this practice could produce misleading results within this paper we examine the effect of this practice when it is used on our laboratory data

market behavior in bid offer and double auctions abstract this study examines the robustness of the previously observed smith 1964 differences in market behavior between double auctions both buyers and sellers may enter price quotes bid auctions only buyers may enter price quotes and offer auctions only sellers may enter price quotes based on the results of twenty one market experiments we find little support for the a priori hypothesis that bid auction prices tend to be greater than double auction prices which tend to be greater than offer auction prices

the effects of rent asymmetries in posted offer markets abstract we report the results of six posted offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium the posted offer experiments are compared with twelve double auction experiments reported by smith and williams 1982 results differ markedly across trading institutions unlike trading under double auction rules we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus posted offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus

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

discussion of a laboratory investigation of the moral hazard problem in an agency relationship the first question concerned the assumption of risk neutrality of both the principals and agents in the models specifically given this assumption it was not clear what element s in the modeling or experimental design precluded the principal s from simply selling or renting the firm to the agent s more important the risk neutrality assumption has a direct effect on the predictions of the models the experimental results and their interpretation finally it was suggested that new experimental techniques such as those developed by berg et al forthcoming might be used to induce specific risk preferences given a particular model to be tested and its attendant experimental design although these techniques have not been fully tested using them may reduce the need to make assumptions about subjects risk preferences and thereby overcome the kinds of questions raised on this issue a second issue dealt with why the experimental study of the moral hazard problem in the principal agent relationship was carried out in a market setting with several principals and agents rather than following

empirical implications of alternative models of firm dynamics abstract this paper considers two models of firm behavior that allow for heterogeneity among firms idiosyncratic or firm specific sources of uncertainty and discrete outcomes exit and or entry both the characteristics of firm level panel data sets and the nature of the questions we characteristically ask of them imply that models with these features are likely to underlie most detailed empirical work on microdata sets the models we consider are a bayesian learning model due to jovanovic 20 and a model of research and exploration due to ericson and pakes 11 the paper provides a simple set of empirical procedures to help determine which if either of these two models might be appropriate for alternative data sets we conclude by checking for the implications of the two models on an eight year panel of wisconsin firms the results indicate that one model is consistent with the data on manufacturing firms while the other is consistent with the data on retail trade journal of economic literature classification numbers c52 l60 l80

convergence to nonstationary competitive equilibria an experimental analysis abstract this paper reports the results of 26 posted offer and double auction markets examining the effect of systematic supply and or demand nonstationarities on market performance and dynamic adjustment paths to the competitive equilibria both the trading institution and the source of the nonstationarity are found to affect the ability of markets to track the competitive equilibrium although some posted offer markets track the competitive equilibrium price as well as comparable double auctions posted offer markets consistently exhibit lower efficiency the inability of the posted offer trading institution to track demand based market shocks is particularly striking

plant level employment development before collective displacements comparing mass layoffs plant closures and bankruptcies this article analyzes the development of employment levels and worker flows before bankruptcies plant closure without bankruptcies and mass layoffs utilizing administrative plant level data for g

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

in search of predatory pricing can predatory pricing be reproduced in a laboratory environment we report research motivated by this objective we began with conditions that based on the literature appeared to combine the features this literature has suggested are favorable to the emergence of predation next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories of 10 experiments none evidenced predatory behavior most supported the dominant firm theory the second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency

the exercise of market power in laboratory experiments douglas d davis and charles a holt march 1998 introduction many aspects of antitrust policy are influenced by the possibility that sellers in concentrated markets may have the power to raise prices above competitive levels of course anyone can raise price so the issue is whether a change in structure e g a merger will allow one or more sellers to raise price profitably a price increase by one seller diverts sales to others so a firm is more likely to have market power when its competitors have limited capacity to expand their sales thus a merger that reduces competitors capacity may create market power in laboratory experiments any treatment that reassigns units of capacity from one seller to another may create or destroy market power even if the aggregate supply curve is unchanged for example giving one seller a relatively large endowment of infra marginal low cost units may make it less risky for this seller to raise price and forego the sale of high cost units thus it is not surprising that experiments with apparently similar supply and demand structures may yield different price outcomes as discussed below there are a number of other ways in which structural changes can affect the degree of power that sellers enjoy market power can also be sensitive to the trading institution and this is the context that power issues first arose in experimental economics for example the public posting of uniform prices in a posted offer auction eliminates the incentive to offer discounts on marginal units that arises in a double auction in fact smith 1981 found that even monopolists are sometimes unable to maintain prices above competitive levels in double auctions whereas supra competitive prices are the norm in postedoffer monopolies similarly holt langan and villamil 1986 found that sellers in concentrated double auctions were sometimes able to raise prices but that prices fell to competitive levels in about half of the sessions despite the high concentration of seller capacity davis and williams 1991 replicated the holt langan and villamil results for double auctions and then used the same market

when curiosity kills the profits an experimental examination economic theory predicts that in a first price auction with equal and observable valuations bidders earn zero profits theory also predicts that if valuations are not common knowledge then since it is weakly dominated to bid your valuation bidders will bid less and earn positive profits hence rational players in an auction game should prefer less public information we are perhaps more used to seeing these results in the equivalent bertrand setting in our experimental auction we find that individuals without information on each other s valuations earn more profits than those with common knowledge then given a choice between the two sets of rules half the individuals still preferred to have the public information we discuss possible explanations including ambiguity aversion

experimental evidence of a sunk cost paradox a study of pricing behavior in bertrand edgeworth duopoly a well known implication of microeconomic theory is that sunk costs should have no effect on decision making we test this hypothesis with a human subjects experiment students recruited from graduate business courses with an average of over six years of work experience played the role of firms in a repeated price setting duopoly game in which both firms had identical capacity constraints and costs including a sunk cost that varied across experimental sessions over six different values we find contrary to the prediction of microeconomic theory that subjects pricing decisions show sizable differences across treatments the effect of the sunk cost is non monotonic as it increases from low to medium levels average prices decrease but as it increases from medium to high levels average prices increase these effects are not apparent initially but develop quickly and persist throughout the game cachon and camerer s 1996 loss avoidance is consistent with both effects while cost based pricing predicts only the latter effect and is inconsistent with the former

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

cooperation in and out of markets an experimental comparison of public good games and markets with externalities experimental studies have compared cooperation across different nonmarket social dilemma settings but the experimental literature has largely overlooked comparing cooperation across market and nonmarket settings this paper reports the results from an experiment that compares behavior in theoretically equivalent public good games and market games with externalities both positive and negative external effects are considered results indicate that people tend to be less cooperative in the marketplace relative to the nonmarket setting whether the external effect is positive or negative most striking is the finding that the combination of a positive external effect in a nonmarket setting i e the standard public good game stands apart from the other market and nonmarket settings

the effects of discounting opportunities in laboratory posted offer markets abstract this experiment isolates the effects of allowing sellers to offer private discounts from posted prices although discounting was pervasive when permitted it did not always improve performance high prices and low efficiencies were observed in half of the discount markets

market contestability in the presence of sunk entry costs this article extends previous laboratory experimental research to examine the competitive discipline of contested markets with a natural monopoly type cost structure where sunk costs are neither zero nor infinite several alternative conjectures as to how or whether sunk costs can weaken the discipline of contested markets are presented and interpreted in the context of the experimental design sunk costs are found to weaken the support for strong interpretations of the contestable markets hypothesis and thus yield a wide diversity of dynamic patterns of market performance yet the disciplining power of contestability remains impressive with no indications of sustained monopoly pricing

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

behavioral heuristics and market patterns in a bertrand edgeworth game abstract this paper studies bertrand price setting behavior when firms face capacity constraints bertrand edgeworth game this game is known to lack equilibria in pure strategies while the mixed strategy equilibria are hard to characterize we explore families of heuristic rules for individual price setting behavior and the resulting market patterns through simulations of agent based models and laboratory experiments overall the individual pricing strategies observed experimentally can be represented approximately by a sales based simple rule in the experiments average market prices tend to converge from above and approach a state resembling a steady state with slow aggregate price variations and low price dispersion around an average near the competitive level however that configuration can be disturbed occasionally by excursions triggered by discrete price raises of some agents salient features of experimental results can be described by simulations where agents use sales based heuristics with parameters calibrated from the experiments the results obtained here suggest the existence of useful complementarities between analytical experimental and agent based simulation approaches

no deep pockets some stylized empirical results on firms financial constraints this paper is a survey of recent empirical work on financial constraints faced by firms it is organized as a series of stylized results which mirror what is generally understood about the severity of financial constraints and the effects that they have upon firms the review of the literature shows that a financial constraints are a widespread key concern for firms hindering their ability to carry out their optimal investment and growth trajectories and b the severity of such constraints depends on institutional and firm specific characteristics as well as on the nature of investment projects

getting out the vote participation in gubernatorial elections scholarship on electoral turnout has long emphasized two main themes explanations of nonvoting in terms of individual characteristics and in terms of contextual variables these investigations have deeply enriched our understanding of electoral participation but their limitations have also sensitized us to the remaining problems of explanation perusal of the work on american politics exposes a rather striking tendency in studies of participation to ignore or soft pedal the effects of active political mobilization in this article we formulate two models of electoral turnout socioeconomic and political mobilization and apply them to aggregate data on voting in gubernatorial elections of 1978 and 1980 the socioeconomic model of turnout includes such influences as income age and educational attainment to assess the effects of political mobilization we have considered campaign spending partisan competition electoral margin and the presence or absence of a simultaneous race for the united states senate both of the models perform quite well individually producing significant and meaningful coefficients and adequate fits yet in the final analysis we demonstrate that quite apart from major sources of variation in gubernatorial turnout such as region and presidential versus nonpresidential years the mobilizing influences of campaign activism and competitiveness have a strong impact on electoral participation electoral law i e closing date of registration retains a small but significant effect on voting for governor and socioeconomic characteristics included in a fully specified model have little to contribute independently to an explanation of electoral turnout these findings are very much in the same vein as related cross national investigations which emphasize the crucial role of electoral law and political parties and downplay individual characteristics as determinants of electoral participation on the basis of the research reported here we argue that scholars need to pay more attention to political mobilization as an explanation of electoral turnout in the presidential election between cox and harding in 1920 only half of the eligible voters participated this relatively low turnout together with the historically minimal rates of participation in state and local elections created deep concern among those who believed that reasonably high levels of political involvement are crucial in maintaining a healthy democratic politics it was in this atmosphere of worry about low electoral turnout that charles e merriam and harold f gosnell 1924 conducted in the city of chicago the first systematic study of nonvoting subsequently gosnell 1927 went even further and executed the first experimental study in modern political science demonstrating conditions that could stimulate electoral turnout we too worry about low participation in elections today at every level of government and we believe these classic studies

campaign spending limits and political advertising traditionally research on political campaigns has focused on the positioning of parties and not on how parties communicate with the electorate we construct a model where two parties fund both the creative and media elements of political advertising and examine how campaign budgets affect advertising strategies in the context of a political campaign our key finding is that tight campaign limits stimulate aggressive advertising on the part of competing parties while generous budgets often lead to parties acting defensively the analysis also provides an explanation for the increasingly partisan campaigns that the republicans and democrats have taken in recent elections when there is significant polarization amongst noncommitted voters and campaign spending limits are higher we find that parties retrench toward traditional constituencies

the value of the vote a model and test of the effects of turnout on distributive policy the most plausible assumption is that if certain groups or classes of citizens habitually do not vote their interest will be neglected in the actions and policies of governments key 1950 506 i introduction this article investigates the effects of voter participation on the distribution of government funds a simple model shows why for some types of distributive policy incumbents will have a greater probability of reelection if high turnout regions receive more funds than do low turnout regions the model predicts therefore that politicians who seek reelection and similarly politicians including the ideologically driven selected into office because they set popular policy will tend to allocate more funds to regions with higher turnout i test the model s predicted relationship between turnout and spending for the south in the 1930s spending data are county level allocations by the federal emergency relief administration fera which was the early new deal s main program to provide relief to the unemployed the evidence suggests that turnout had a substantial effect on fera spending if an individual was a voter rather than a nonvoter it typically led to an increase on the order of 30 in the expected fera allocation for the individual s county the findings shed light both on the role of voting in representative democracies and on the historical role of voting rights in the southern political system elections voter participation and policy representative democracy creates a tendency for government to set policy that improves politicians prospects for reelection this may occur because politicians design policy for the purpose of winning reelection or it may occur because elections sort into office those politicians who for ideological or other reasons tend to set policy that wins votes 1 the type of policy that improves the prospects for reelection depends upon how voters respond to policy to illustrate this point consider the distribution of a fixed sum between different regions e g counties one key consideration is the extent to which voting behavior responds to distributive policy allocating funds to groups that do not respond will be less likely to lead to reelection groups that do not respond include those who will always vote in support of the incumbent those who will always vote in opposition to the incumbent and those who do not vote previous work on distributive politics has examined how distribution is influenced by constituents voting behavior with respect to whom they support when they do vote for example wright 1974 wallis 1984 1987 1991 kiewiet and mccubbins 1985 cox and mccubbins 1986 and fleck 1999 examine favoritism of swing and loyal voters 2 this article takes a different but complementary approach by focusing on the distributive effects of whether people vote quite simply winning the approval of a group of citizens has a larger effect on reelection if those citizens vote in large numbers than if they do not this provides a reason to expect that politicians will tend to allocate relatively little to those who do not vote this is consistent with the long recognized point that nonvoters have little influence on policy a point that key 1950 made clear and that follows naturally from economic models of voting such as that of downs 1957 bennett and mayberry 1979 show a similar effect of legislative representation on interstate redistribution states with more representatives per capita in congress tend to have lower ratios of taxes paid into the federal treasury relative to federal grants in aid received by modeling and estimating the effects of voter participation this article contributes to the general understanding of how voting influences the allocation of resources furthermore the substantial size of the estimated effects underscores the critical role that voting rights played in the southern political system

advance production in posted offer markets abstract data from market sessions in which production is to demand are compared with data from sessions requiring that output decisions be made and production costs incurred prior to the start of trading in each period no inventory carry over is permitted differences in aggregate output measures such as average contact price sales and market efficiency tend to disappear as traders gain experience in an unchanging environment however the addtional risk introduced by the sunk cost aspect of advance production appears to offset any advantage regarding sellers share of the surplus conferred by the power to post prices

market power and the institutional asymmetry of the posted offer trading institution abstract this paper reports a series of market experiments examining the conjecture that the institutional asymmetry inherent in posted offer pricing can suppress the exercise of market power by the non posting side of the market the data clearly support this conjecture if market power is defined as a unilateral incentive to manipulate the market price via strategic quantity withholding

economic science an experimental approach for teaching and research economics experiments have been used to study theories and policies that are often difficult to evaluate with data from naturally occurring markets this paper is a selective summary of my work in the main areas of experimental economics markets individual decisions games and public choice the discussion pertains both to scientific discoveries and teaching innovations

consumer search costs and market performance i introduction one of the seminal developments leading to the information economics revolution in the 1970s and 19c0s was diamond s 1971 theoretical result that in the absence of publicly posted price information the existence of even a small search cost could lead to monopoly pricing the intuition is straightforward no buyer with one price quote would want to search for a second unless it is likely that the buyer would encounter a price reduction that covers the search cost thus each seller has an incentive to price slightly above any common price and the noncooperative equilibrium in a single stage game yields a monopoly price this result is viewed as a paradox since a small search cost produces high prices but a zero search cost would produce the usual bertrand incentives that drive prices to competitive levels in the absence of capacity constraints and other imperfections 1 recent theoretical work has focused on finding a resolution to the paradox stahl 1989 for example generates a smooth transition between competitive and monopoly outcomes as the fraction of consumers with zero search costs increases from zero to one interestingly stahl finds that increasing the number of sellers makes pricing more monopolistic holding the number of informed buyers constant bagwell and ramey 1992 propose an alternative resolution that applies to an infinitely repeated market game where sellers who raise prices can develop a reputation that can affect sales in future periods bagwell and ramey show that buyers can obtain lower equilibrium prices by following a loyalty boycott search rule where low pricing sellers are rewarded with repeated purchases and high pricing sellers are punished with switching the price predictions vary continuously between monopoly and competitive levels depending on the size of the consumer search cost the policy relevance of the diamond paradox depends on whether there are realistic market environments in which small reductions in the availability of price information can cause large price increases 2 due to the difficulty of controlling and measuring information flows in natural markets the laboratory represents an ideal place to evaluate the diamond paradox and proposed resolutions the only experimental analysis of these issues is reported by grether schwartz and wilde 1988 who observed monopoly pricing in three of four predicted cases these results are suggestive but not definitive for reasons discussed below in particular as grether schwartz and wilde 1988 328 observe all four cases involved the same group of subjects to the extent possible this paper reports an experiment consisting of twelve market sessions designed to assess the effects of public price information the markets are conducted as normal posted offer markets except that buyers must pay a small cost each time they approach a different seller in baseline posted offer treatments all prices are publicly displayed to buyers while in search treatments prices are not publicly displayed in brief we find that prices approach competitive levels under the posted offer treatment and prices are significantly higher under the search treatment nevertheless the diamond prediction of monopoly pricing under search is not observed although increases in search costs do raise prices these results indicate that economists should take a more careful look at attempts to resolve the diamond paradox by introducing other factors that may impede monopoly pricing in markets with consumer search the paper is organized as follows our two primary treatments are outlined in section ii and results are presented in section iii the failure to observe the diamond monopoly price prediction motivated additional research on the effects of reputations and search costs which is presented in section iv the final section contains a conclusion ii

testing the boundaries of the double auction the effects of complete information and market power abstract we report boundary experiments testing the robustness of price convergence in double auction markets for non durable goods in which there is extreme earnings inequality at the competitive equilibrium ce following up on a conjecture by smith 1976a we test whether the well known equilibrating power of the double auction institution is robust to the presence of complete information about traders values and costs and the presence of symmetric market power we find that complete information is insufficient to impede convergence to ce prices however introducing market power consistently causes prices to deviate from the ce whether or not subjects possess complete information our design highlights the value of boundary experiments in understanding how market institutions shape behavior and our findings help delineate the limits of the double auction institution to generate competitive outcomes

experience and inventory management in double auction markets abstract prior research indicates that double auction markets with inexperienced traders and production to demand consistently perform very close to the competitive ideal with high efficiency and average prices in the competitive equilibrium range when the environment becomes more complex with the introduction of advance production and costless inventory carryover the efficiency of the double auction market with inexperienced traders is reduced and production and sales are lower in comparison with the production to demand double auction market the central finding of this paper is that even when traders are experienced the efficiency losses associated with this more complex double auction environment remain

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

advance production and cournot outcomes an experimental investigation abstract an experiment designed to assess the effects of advance production decisions on posted offer market performance is reported six of the twelve triopolies were conducted under standard posted offer rules in the remaining markets sellers made binding production commitments prior to posting prices an alteration that shifts the unique stage game nash equilibrium from the competitive to the cournot outcome as predicted advance production decisions raised prices and lowered output nevertheless stable cournot outcomes were never observed

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

the death of firms exploring the effects of environment and birth cohort on firm survival in sweden this paper investigates the death of firms and seizes a long term perspective it investigates the life spans of nearly 2 200 firms in seven birth cohorts of swedish joint stock companies founded during seven separate years between 1899 and 1950 research has traditionally emphasized individual and micro oriented factors in explaining post entry performance or has often focused on the influence of firm specific structural factors firm age and size a less attended field recognizes environmental forces this paper focuses on the interaction between the micro and macro levels and combines structural and environmental factors employing a cohort approach it relates firm survival to firm age and size as well as to the effect of cohort affiliation and environmental change over time period effects during macroeconomic expansion the risk of death decreases cohort effects are also evident firms founded during times of economic crisis exhibit lower survival rates consequently cohort affiliation and environmental forces i e period effects can explain differences in death rates in different firm populations

price formation in double auction markets abstract this paper reports 14 laboratory experiments that examine existing theories of the price formation process in the continuous double auction the experiments feature random values and costs and therefore a new price formation observation each period we find that efficiency is high and rises with experience in this environment we also find that trades with greater exchange surplus tend to occur earlier in the period that increased trader experience reduces an anomalous intertemporal arbitrage opportunity observed previously and that only when traders are very experienced does exchange surplus accrue disproportionately to the side of the market with a smaller number of traders

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

asymmetric surplus distribution and the price convergence path in posted offer markets a note abstract we report results from five posted offer experiments with firm specific quotas the average contract price converges from below the competitive equilibrium thus the independence of the contract price convergence path from surplus distribution is questioned in our results

advance production inventories and market power an experimental investigation i introduction bertrand edgeworth games are an important part of any industrial organization economist s toolkit the unilateral market power created by capacity constraints represents one of economists primary methods for modeling supra competitive prices as a static equilibrium outcome in a price setting game 1 the standard bertrand edgeworth model however rather restrictively assumes that production is to demand and that goods are immediately perishable in the broad swath of modern economies that includes the production and sale of physical products these assumptions are often not even approximately satisfied goods are routinely produced prior to being offered for sale at retail establishments similarly while the effective shelf life of many products is quite short relatively few products perish immediately and many have effective shelf lives that extend throughout a sales season if not longer this paper reports a laboratory experiment conducted to assess the effects of having sellers make production decisions in advance rather than to demand and allowing sellers to carry unsold units across periods on market power in a bertrand edgeworth pricing game by way of preview we find that both advance production and an inventory option prominently affect market outcomes advance production reduces profits relative to a baseline condition while an inventory option reduces both prices and profits these results are important as they suggest that deviations from the standard oligopoly structures that routinely arise in natural contexts may fundamentally affect market performance we organize the paper as follows following a brief review of the pertinent literature in section ii we outline equilibrium predictions for baseline advance production and inventory treatments in section iii section iv describes the experimental design and procedures and section v presents the experimental results the paper concludes with a short section vi ii background a theoretical literature economists have long recognized the restrictiveness of the standard price setting oligopoly models shubik 1955 for example argues that when evaluating price setting duopolies economists should consider price quantity games where sellers simultaneously post prices and quantities in addition to games where price is the only decision variable 2 levitan and shubik 1978 compute the mixed strategy equilibrium for a duopoly given advance production and unlimited capacities more recently tasnadi 2004 analyzes the case of advance production for capacity constrained duopolists pertinent to the present investigation tasnadi shows that under very general conditions advance production raises prices but leaves seller profits unaffected the only theoretical work that analyzes the links between product durability and market prices of which we are aware is a stream of literature following coase 1972 regarding the effects of product durability on monopoly power specifically given sufficiently patient consumers the coase conjecture suggests that infinite durability will eliminate monopoly power analytical results are driven by consumers who drive prices down by waiting for future discounts 3 to the best of our knowledge no one has analyzed the effects of product durability on production and pricing incentives for capacity constrained price setting duopolists b experimental literature the relevant experimental literature consists of three strands a first strand consists of a series of papers establishing that laboratory sellers recognize and exercise the unilateral market power induced by capacity constraints pertinent seminal references are davis and holt 1994 and kruse et al 1994 while some relevant related papers include davis holt and villamil 2002 davis and wilson 2000 and wilson 1998 a second strand of the experimental literature studies the effects of advance production on posted price markets

consumer and competitor reactions evidence from a field experiment abstract in response to a price change by a single seller it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more responsive demand this finding is fundamental to a predicted inverse relationship between market prices and the number of competitors we also examine the reaction of rival stations to exogenous price changes and find that the magnitude of a competitor s response is inversely related to the density of stations in the market

redefining business success distinguishing between closure and failure new firms are believed to have high closure rates and these closures are believed to be failures but two u s census bureau data sources illustrate that these assumptions may not be justified the business information tracking series bits showed that about half of new employer firms survive beyond four years and the characteristics of business owners cbo showed that about a third of closed businesses were successful at closure the cbo also made it possible to compare results of models of business survival and business success but because of non response bias logit models were used similar to previous studies firms having more resources that were larger with better financing and having employees were found to have better chances of survival factors that were characteristic of closure such as having no start up capital and having a relatively young owner were also common in businesses considered successful at closure hence few defining factors can be isolated leading to true failures the significant proportion of businesses that closed while successful calls into question the use of business closure as a meaningful measure of business outcome it appears that many owners may have executed a planned exit strategy closed a business without excess debt sold a viable business or retired from the work force it is also worth noting that such inborn factors as race and gender played negligible roles in determining survivability and success at closure

seller beware supply and demand reduction and price manipulation in multiple unit uniform price auctions we experimentally compare under revelation of supply and demand across alternative variations of ascending and descending two sided price clock auctions we find that buyers reduce demand more when the price is ascending but sellers behavior is consistent across clock directions as a result the clock price rule has empirical effects on efficiency even though it is theoretically neutral

can supply and demand parameters be recovered from data generated by market institutions the relative accuracy of estimators in recovering supply and demand parameters can depend on the market institutions that generate the data the parameters of known supply and demand functions are estimated with data from laboratory market experiments with human buyers and sellers single equation estimators dominate simultaneous equations estimators in recovering supply and demand parameters from posted offer market data the inaccuracy of simultaneous equations estimators with posted offer data can be explained by the implications for error distributions of the inherent properties of this market institution simultaneous equations estimators perform better with closing price data from double auction markets

competitive equilibrium convergence in a posted offer market with extreme earnings inequities abstract we present the results of five laboratory posted offer experiments in which the competitive equilibrium model predicts that all exchange profits are received by one side of the market thus defining a boundary condition price converges to the prediction more slowly when buyers rather than sellers receive the exchange surplus apparently due to the increased market power of sellers in this trading mechanism a model of the seller s decision in this market is developed to explain this result we also observe costly signalling and tacit collusion in our experiments

price formation in double auctions abstract we develop a model of information processing and strategy choice for participants in a double auction sellers in this model form beliefs that an offer will be accepted by some buyer similarly buyers form beliefs that a bid will be accepted these beliefs are formed on the basis of observed market data including frequencies of asks bids accepted asks and accepted bids then traders choose an action that maximizes their own expected surplus the trading activity resulting from these beliefs and strategies is sufficient to achieve transaction prices at competitive equilibrium and complete market efficiency after several periods of trading journal of economic literatureclassification numbers d41 d44 d8

rebuttal to jacobson s new evidence for old arguments in salvation for the spendthrift incumbent green and krasno 1988 we argue that incumbent spending has a sizable effect on the house vote this stands in direct contrast to professor jacobson s well known view that campaign spending by incumbents is not related to how well they do at the polls jacobson 1983 42 emphasis in the original in his rebuttal jacobson criticizes our findings on three grounds first he argues that the instrument we use in our twostage least squares model for incumbent spending is invalid second he complains that our model fails to account for diminishing marginal returns finally jacobson asserts that our findings for the 1978 election do not hold for subsequent years in this paper we briefly respond to these criticisms using data drawn from the 1976 86 elections we demonstrate that incumbent spending has a substantial influence on the vote we then critique the assumptions underlying jacobson s individual level analysis in the end we find little empirical support for jacobson s contention that the effects of incumbent spending are substantively small and statistically insignificant much of jacobson s essay focuses on the question of whether incumbent spending is as effective as challenger spending this comparative question however occupies a minor place in our salvation essay our main objective was to show that incumbent spending has more than a trivial influence on electoral outcomes we do not disagree in fact with jacobson s position that the marginal effect of challenger spending exceeds that of incumbent spending but this is not the only way to gauge the relative importance of incumbent and challenger spending another way would be to compare the yield the number of votes purchased by challengers and incumbents in each district this standard takes into account the fact that incumbents typically outspend their opponents data from 1976 86 indicate that the yield from incumbent spending is both considerable and on par with the yield from challenger expenditures in sum access to financial resources represents one of the important advantages of incumbency for the spendthrift incumbent is able to offset the effects of campaign expenditures by the opposition

advance production in experimental markets the effects of advance production in posted offer and double auction markets are investigated previously observed differences between these institutions in mean contract prices and in the distribution of producers and consumers surpluses under the production to demand condition disappear when sellers make output decisions and incur production costs prior to the start of trading the double auction institution remains more efficient under advance production the results suggest that the differential effects of alternative trading institutions on market outcomes may be partially offset by the production conditions characterizing a market

bargaining versus posted price competition in customer markets abstract we compare posted price and bilateral bargaining or haggle market institutions in 12 pairs of laboratory market sessions each session runs for 50 75 periods in a customer market environment where buyers incur a cost to switch sellers costs evolve following a random walk process coasian and new institutionalist traditions provide competing conjectures on relative market performance we find that efficiency is lower sellers price higher and prices are stickier under haggle than under posted offer

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

intertemporal price competition alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria one which we call disciplined arises when products are close substitutes another which we call spontaneous emerges when products are more differentiated in disciplined equilibria an implicit threat to cut price further in response to an initial price cut supports quite collusive outcomes which become less collusive as product differentiation increases in spontaneous equilibria no such threat is needed consumers in the smaller market tend to pay a higher price as do consumers served by the more efficient firm copyright 1990 by the econometric society

nash equilibrium and buyer rationing rules experimental evidence i introduction this paper presents the results of laboratory experiments comparing the effect of two buyer rationing rules on capacity constrained duopoly markets bertrand edgeworth games this setting offers an excellent opportunity to compare the stage game nash prediction with other equilibria of a repeated game under otherwise identical conditions the rationing rule generates either a unique pure strategy equilibrium or a unique mixed strategy equilibrium of the stage game further collusive outcomes of the repeated game are supported by a wider range of discount factors for one rationing rule than the other this study presents evidence that the single stage nash equilibrium has predictive power for both rationing rules even in repeated settings this result appears to be robust whether the nash equilibrium is in pure strategies or exists only in mixed strategies in modeling capacity constrained price games the choice of rationing rule is possibly the most arbitrary decision a theorist makes in the literature of single shot bertrand edgeworth games we can find examples of nearly identical models which yield substantively different results due to differences in the rationing rule assumed examples are beckmann s 1965 model and levitan and shubik 1972 allen and hellwig 1986 and vives 1986 and kreps and scheinkman 1983 and davidson and deneckere 1986 laboratory experiments provide an interesting opportunity to examine the empirical consequences of alternative buyer rationing rules knowledge of the type of buyer rationing scheme involved with field data is usually unavailable to a researcher in laboratory experiments the researcher can control the type of buyer rationing rule to be used and compare the effects of alternative rules this study provides a first step toward an empirical understanding of the effects of rationing rules one of the rationing rules that i study the value queue 1 is mathematically more tractable than an alternative the random queue 2 hence the authors are able to generalize the value queue models in other dimensions however the value queue assumption reservation values that comprise demand are ordered from highest to lowest should be viewed as a serious restriction on the applicability of these models section ii relates laboratory and field experiments to single shot bertrand edgeworth nash equilibria section iii describes the development and recent contributions to bertrand edgeworth oligopoly theory and demonstrates the effect of rationing rule assumptions on theoretical predictions i describe the experimental design in section iv and identify the competitive monopoly joint profit maximum and single shot nash predictions additionally qualitative differences predicted by single shot and repeated game nash equilibria are discussed experimental results follow in section v with concluding remarks in section vi ii laboratory and field experiments and the nash equilibrium existing laboratory evidence for capacity constrained price games has been compared to the single shot nash equilibrium only ketchum smith and williams 1984 and kruse rassenti reynolds and smith 1993 provide initial results as to the predictive strength of the single stage nash equilibrium in a laboratory environment ketchum smith and williams compare the prices resulting from four seller plato computer assisted posted offer markets the comparison is between one treatment group in which the competitive equilibrium is also the single stage nash equilibrium and another treatment group in which the competitive equilibrium is not a nash equilibrium they find significantly different market outcomes between the two groups kruse rassenti reynolds and smith 1987 test a four seller constant marginal cost bertrand edgeworth model using a komogorov smirnoff test they reject the hypothesis that the actual price distribution matches the mixed strategy price distribution predicted by the theory

the effects of rent asymmetries in markets characterized by advance production abstract the results of 40 controlled market sessions are reported the effects of advance production and the distribution of the market surplus between buyers and sellers on the relative performance of posted offer and double auction markets are compared with the relative performance of posted offer and double auction institutions in markets with production to order performance differences between the two institutions across production conditions as the surplus distributions are varied are similar but not identical the distribution of surplus appears to have an effect on the performance measures in advance production markets

the campaign value of incumbency a new solution to the puzzle of less effective incumbent spending a puzzle in research on campaign spending is that while expenditure is positively related to votes won this effect is far more strongly or even exclusively enjoyed by challengers rather than by incumbents we unearth a new explanation for the puzzle focusing on the hidden yet variable campaign value of office perquisites which incumbents deploy in their campaigns to win votes when these variable office benefits are unobserved then the effect is to make observed incumbent spending less effective than spending by challengers using data from the 2002 irish general election where incumbency was assigned a variable campaign value and included in declared campaign spending we are able to demonstrate this hidden incumbency effect and estimate its relationship to electoral success in terms of overall votes share of votes and probability of winning a seat contrary to previous research showing ineffective incumbent spending we find that when the campaign value of office is also measured public office value spending is not only very effective in winning votes but also seems to be more effective than regular incumbent spending

advertising and product quality in posted offer experiments advertising and product quality in posted offer experiments i introduction for years the federal trade commission ftc has attacked unfair and deceptive advertising recently it has turned its attention to errors of omission rather than commission by challenging agreements among sellers to limit advertising even when it is truthful one reason for eliminating advertising restrictions is to stimulate competition in the advertised dimension of the good or service for example price advertising may result in more price competition on the other hand professional associations argue that price competition causes product quality to deteriorate because sellers of high quality services are forced to match the lower prices of sellers of low quality products and through their codes professional associations have implicitly or explicitly discouraged some forms of advertising including price advertising restrictions of this nature still exist in some local markets although they have become the subject of ftc litigation 1 the quality deterioration argument of professional associations is plausible only when buyers are unable to observe quality prior to purchase 2 when buyers cannot distinguish quality moral hazard invites sellers to lower cost by providing lower quality adverse selection can result from price advertising causing lower cost products to drive out higher cost products as argued by akerlof 1970 the opposite point of view is that even when quality cannot be determined prior to purchase price advertising may enable sellers to signal quality and develop reputations 3 moreover transactions repeatedly involving the same buyers and sellers may enable buyers to form expectations about seller quality based on their experience that can make it worthwhile for a seller to provide higher quality the series of laboratory experiments described here permits the evaluation of market performance when buyers have very limited information the claim to be investigated is that price advertising prevents quality deterioration and improves market efficiency reputation formation through advertising is emphasized instead of other mechanisms such as warranties that may prevent quality deterioration 4 so that quality can be kept relatively neutral and easily understood by subjects we represent it as the grade of a commodity the structure underlying the experiments is based on holt s model of the determination of industry quality which is summarized in schmalensee 1979 demand is induced through the values for which buyers can redeem their purchases value is linearly related to grade so that no difference between average and marginal valuation of quality can arise to cause nonoptimal quality as it did in spence 1976 the production cost for each seller is quadratic in the grade selected by the seller therefore the efficient grade level is unique the most closely related experimental work on product quality decisions is reported in lynch miller plott and porter 1986 in their experiments sellers chose one of two quality levels prices were determined in an oral double auction efficient price and quality outcomes resulted when prospective buyers were given full information about quality removing the identities of sellers and allowing only post purchase quality information sometimes resulted in a lemons outcome in which sellers offer a low quality product even though the market would be more efficient with the production and sale of a high quality product private information tended to yield less efficient outcomes than full public information the posted offer experiments reported in this paper differ from the oral double auction experiments in lynch miller plott and porter because one of our objectives was to examine the effect of advertising restrictions on market efficiency in our experiments price advertising is implemented in a standard posted offer auction

oligopoly competition in fixed cost environments abstract many industries with avoidable fixed costs face competitive price instability problems in an attempt to maintain profitability we designed an experimental environment where profitability is eroded by the addition of sunk and avoidable fixed costs while we cannot reject the hypothesis that sunk fixed costs have no effect on prices we observe a pattern of price signaling and responses which maintain above normal profits this success implies that a firm does not have to exit such an industry in order to avoid loses and may help to explain why some competitive industries appear to maintain an inefficient number of firms

market power and mergers in laboratory markets with posted prices in this article we use laboratory methods to evaluate determinants of supracompetitive pricing the experiment involves three treatments each with the same market supply demand and competitive price in the baseline treatment capacity is divided among five sellers so that the competitive price is a nash equilibrium market power is created in a second treatment by reallocating capacity among the sellers this market power raises observed prices in all sessions in a third treatment the three smallest sellers are merged in a way that holds market power constant the consolidation has little residual effect on prices

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

predatory pricing in a multiple market experiment a note abstract isaac and smith 1985a b present a strong behavioral case that predatory pricing is not an observable laboratory phenomenon we propose several modifications of their design resulting in a multiple market experiment in which predatory pricing is present the primary modification involves conducting several markets concurrently providing an active escape opportunity for any prey and a potential reward to a reputation for predation these results provide a behavioral existence proof for the predatory pricing phenomenon they do not address the issue of the phenomenon s behavioral robustness

market power and price movements over the business cycle this paper develops and tests implications of an oligopoly pricing model the model predicts that during a demand expansion the short run competitive price is a pure strategy nash equilibrium but in a recession firms set prices above the competitive price thus price markups over the competitive price are countercyclical prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions the empirical analysis utilizes hamilton s time series switching regime filter to test the predictions of the model fourteen out of fifteen industries have fluctuations consistent with this oligopoly pricing model

the life history of cohorts of exits from german manufacturing an investigation of the life history of three cohorts of exits based on longitudinal data covering the population of all manufacturing firms in a german federal state reveals three empirical regularities 1 although the probability of exit tends to decline with age ceteris paribus only about a quarter of all exits is from the group of young firms aged five years or less 2 only a minor fraction of exits lived through a period of continous decline of employment for five years or more before closing down 3 the impact effect of job loss due to exits can differ sharply from the long run effect

lingering illness or sudden death pre exit employment developments in german establishments using a large administrative data set for germany this article compares employment developments in exiting and surviving establishments applying a matching approach we find a clear shadow of death effect reflecting lingering illness in both west and east germany establishments shrink dramatically already several years before closure employment growth rates differ strongly between exiting and surviving establishments and this difference becomes stronger as exit approaches moreover we provide first evidence that prior to exit the workforce becomes on average more skilled more female and older in exiting compared to surviving establishments these effects are more clearly visible in west than in east germany

competing trade mechanisms and monotone mechanism choice abstract we investigate the choice between posted prices and auctions of competing sellers with private valuations assuming that buyers face higher hassle costs in auctions we show the existence of monotone pure strategy equilibria where sellers offer posted prices rather than auctions if and only if they have a sufficiently high reservation value posted prices sell with lower probability but yield a larger revenue in case of trade using an empirical strategy to compare revenues of posted prices and auctions that takes selling probabilities explicitly into account we find our theoretical predictions supported by data from ebay auctions on ticket sales for the euro 2008 european football championship

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

the impact of campaign spending on votes in multiparty elections abstract the impact of candidate campaign spending on votes and abstention in multiparty elections is estimated from the specification of a structural model of voter behavior this model accounts for the endogeneity of campaign spending as well as the heterogeneity in voter preferences empirical results are estimated from aggregate actual election data the results demonstrate the importance of spending during the campaign period and voter heterogeneity with respect to these expenditures the own and cross expenditure vote share elasticity estimates reveal that political campaign spending not only redistributes voters across parties but also decreases the size of the abstaining group of the electorate

the effects of campaign spending in house elections new evidence for old arguments the question of how campaign spending affects election results remains open because the simultaneity problem has proven so intractable green and krasno s 1988 recent attempt to solve the problem and to demonstrate that marginal returns on spending are as great for incumbents as for challengers again comes up short a panel feature of the abc newslwashington post congressional district poll conducted during the 1986 elections offers a fresh perspective on the question analysis of changes in voting intentions during the final six weeks of the campaign shows that as the tainted ols studies have invariably suggested the amount spent by the challenger is far more important in accounting for voter s decisions than is the amount spent by the incumbent

contestability in the presence of an alternate market an experimental examination most earlier experimental tests ofthe contestable market hypothesis assume a zero opportunity cost of entry this design feature makes interpretation of results in terms of entry behavior problematic the experimental study that i report tests contestability with the addition of an alternate market that yields a positive profit with certainty this safe haven operationalizes a positive opportunity cost of entry hit and run entry is observed in the experiments adjusted mean prices are not significantly different from the zero opportunity cost case two methodological questions are also examined in one treatment sellers price offers are allowed only in 0 25 increments the simplification of the sellers decision space makes collusive arrangements more probable secondly market outcomes using human subject buyers are compared with outcomes from experiments with computer simulated demand the disciplining effect of human subject buyers results in market prices that converge to competitive levels more quickly the theory of contestable markets as presented by william baumol in his 1981 address as outgoing president of the american economic association has received considerable attention since its introduction the thesis of contestability is that we can model a market that attains a competitive outcome without the large numbers price taking assumption in the perfectly contestable market envisioned by baumol and others we would observe the efficient competitive price in equilibrium even with few or only one active seller the threat of entry is the disciplining force that sustains the efficient price as an equilibrium previous experimental tests of the contestable market hypothesis for the natural monopoly case all include at least two active firms pricing in every period the laboratory outcomes of these markets are indistinguishable from the destructive competition that has historically concerned scholars sharkey 1982 one can assert that the competitive prices that result from these natural monopoly markets are due to cutthroat competition because that market is the only game in town the study of the contestable natural monopoly that i report allows subjects the option of earning a normal rate of return in an alternate market thus there is at least the possibility that we can observe a single active seller choosing the efficient price

experimental methods for the general economist five lessons from the lab i review five primary results from experimental economics that impact the economics profession as a whole these results regard the relative un importance of subject sophistication in laboratory markets the importance of gender on economic outcomes the propensity for humans to behave in less than fully rational ways the importance of trading institutions on economic performance and the behavioral relevance of economic theory i find that economics as a profession has benefited from the use of experimental methods by fostering a dialogue between theorists and empiricists better informing policy and improving data collection techniques

how much does money matter buying votes in japan 1967 1990 japanese elections are notorious for the money that flows between contributors politicians and voters to date however nobody has estimated statistically the impact of this money on electoral o

the survival of new plants start up conditions and post entry evolution abstract this paper examines the longevity of entrants we find size to be an important determinant of the chances of survival this being particularly relevant to de novo entrants as compared with entry by established firms current size is also found to be a better predictor of failure than initial size moreover our findings indicate that after controlling for size differences past growth matters for survival suggesting a partial adjustment process for firm size in the post entry period finally new plants are more likely to live longer if they enter growing industries or industries with little entry activity

natural monopoly and contested markets some experimental results a firm may become a monopolist because the average cost of producing the product reaches a minimum at an output rate that is big enough to satisfy the entire market at a price that is profitable in a situation of this sort if there is more than one firm producing the product each must be producing at a higher thanminimum level of average cost each may be inclined to cut the price to increase its output rate and reduce its average costs the result is likely to be economic warfare and the survival of a single victor the monopolist

sunk costs firm size and firm growth for several decades the conventional wisdom has been that expected firm growth rates are independent of firm size a property known as gibrat s law however recent empirical work has found a negative relation between firm growth and firm size this paper provides a theoretical explanation for this negative relation in a model of new firm growth where capacity and technology choices involve some degree of sunkness additional empirical implications of the theory of sunk costs are also developed these relate to profit rates tobin s q exit rates degree of sunkness of capacity costs as well as size and growth rates copyright 1995 by blackwell publishing ltd

the effects of information costs on search and convergence in experimental markets abstract nearly all markets contain some kind of friction making it difficult to reach full efficiency one ubiquitous source of market friction is the cost of obtaining pricing information we determine how market performance as well as buyer and seller behavior are affected by the introduction of price information costs in experimental posted markets rothschild journal of political economy 1973 1283 journal of political economy 1974 689 theorizes that search is negatively related to knowledge of the price dispersion and the cost of search and positively related to market price dispersion we find that market knowledge and the cost of search itself affect search but we find no evidence supporting the role of price dispersion in search decisions we also find evidence supporting smith and plott review of economic studies 1979 133 and walker and williams 1988 both of which show price convergence comes from below in posted bid markets and from above in posted offer markets high information costs tend to reduce or eliminate convergence average prices are above the market clearing price for posted offer markets and below for posted bid markets and never cross the market clearing threshold also consistent with walker and williams more generally our results support the notion of symmetry between experimental posted offer and posted bid markets broadening the relevance of experimental search research

winning the local vote the effectiveness of constituency campaign spending in great britain 1983 1992 much recent analysis of british politics has assumed explicitly or implicitly that constituency campaigns have no impact upon an electorate that draws on an increasingly nationalized media for its information we employ data on constituency campaign spending to challenge this interpretation local party campaigners are rational in their use of funds spending most in seats where the competition is close and least where there is little hope of winning what is more campaign spending is clearly associated with voting increasing support for the spending party and decreasing support for its rivals contrary to the accepted wisdom local campaign spending can result in important shifts in the vote however local campaigning seems to be of much more value to challengers than to incumbents

posted offer markets in near continuous time an experimental investigation this paper reports an experiment conducted to evaluate a near continuous variant of the posted offer trading institution where the number of periods in a market session is increased by reducing sharply each period s maximum length experimental results suggest that although decisions in time truncated periods are not equivalent to periods of longer duration extensive repetition improves considerably the drawing power of equilibrium predictions in some challenging environments nevertheless significant deviations remain in the near continuous framework we also observe that the extra data collected in the near continuous framework allows new insights into price convergence and price signaling

market power in oral double auctions this paper reports the results of a series of oral double auction experiments in which some traders possess market power a market is set up in which the configuration of the supply and demand curves leads to an asymmetry between buyers and sellers in their abilities to influence transactions prices this market structure does not always lead to convergence to the competitive equilibrium price despite the competitive nature of the oral double auction institution the nonconvergence occurs most frequently in the experiments involving experienced subjects

firm specific output limits in a posted offer market distributive and efficiency effects abstract in this paper we look at the effect of the removal of firm specific binding and non binding quotas in experimental posted offer markets in the experiments we see that the effect of both binding and non binding quotas is carried over to the deregulated regime the effect of non binding quotas while being in effect on the number of contracts is statistically significant we also see that distribution of surplus may actually affect the convergence path of prices that is with binding quotas price convergence is observed from below the competitive equilibrium

electoral incentives public policy and the new deal realignment this paper develops a model of the effects of electoral incentives on policy then applies the model to the new deal realignment in the model policy is the outcome of an agenda setter game between the president and legislators specifically the president sets policy subject to legislative approval the president s ability to concentrate benefits in states with high electoral payoffs depends in part on his or her power to influence legislators prospects for reelection regression analysis shows that new deal spending and roll call voting patterns in the house of representatives support the model historical accounts of other aspects of new deal policy including labor and civil rights issues are consistent with the model together the theoretical results and the empirical evidence help to explain several striking features of the policy and politics of the 1930s including i why a government dominated by the democratic party would provide high benefits to swing states and much lower benefits to the traditionally democratic south ii why favoritism of swing states increased from the 1933 1934 period to the 19371938 period iii why favoritism of swing states decreased from 1938 to 1939 and iv why with the rise of the conservative coalition in congress in the late 1930s it was the representatives from traditionally loyal democratic districts that created the strongest democratic opposition to roosevelt and the new deal this paper develops a model of the effects of electoral incentives on policy then applies the model to the new deal realignment in the model policy is the outcome of an agenda setter game between the president and legislators specifically the president sets policy subject to legislative approval the president s ability to concentrate benefits in states with high electoral payoffs depends in part on his or her power to influence legislators prospects for reelection regression analysis shows that new deal spending and roll call voting patterns in the house of representatives strongly support the model historical accounts of other aspects of new deal policy including positions on labor and civil rights issues are also consistent with the model together the theoretical results and the empirical evidence contribute to the understanding of several striking features of the policy and politics of the 1930s