theory and behavior of multiple unit discriminative auctions this paper reports the results of controlled experiments designed to test the harrisraviv generalization of the vickrey theory of bidding in multiple unit discriminative auctions the paper also discusses further development of the theory in a way suggested by the experimental results to include bidders with distinct risk preferences in a well known paper vickrey 20 formulated a nash equilibrium model of bidding by risk neutral economic agents in single unit auctions this analysis was subsequently extended in numerous papers vickrey 21 generalized his original model to include multiple unit auctions in which each of n risk neutral bidders can bid on one out of a total of q homogeneous items up for auction where 1 c q n in both of the vickrey papers individual values for the auctioned object s were assumed to be drawn from a uniform distribution holt 12 and riley and samuelson 19 for single unit auctions and harris and raviv 11 for multiple unit auctions have extended the vickrey model to the case in which valuations are from a general distribution function and all agents have identical concave utility functions this paper reports the empirical properties of individual bidding behavior and seller revenue for a group of 28 laboratory experiments designed to test the harris raviv generalization of the vickrey hereafter vhr model of nash equilibrium behavior in multiple unit discriminative auctions in section i we summarize briefly the theoretical results of the vhr model which form the basis for the hypotheses that we test section ii describes the experimental design that we use section iii describes the experimental results and various tests based on the bidding behavior of individual subjects and on aggregate market seller revenue data the results from six of the ten n q parameter designs reported

endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

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

do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

learning by bidding we analyze a dynamic second price auction with an informed bidder and an uninformed bidder who upon seeing a posted price learns whether his valuation is above that price in the essentially unique equilibrium an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise an uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder this model also provides a rationale behind the use of a secret reserve price in private value settings

valuing the attributes of renewable energy investments increasing the proportion of power derived from renewable energy sources is becoming an increasingly important part of many countries s strategies to achieve reductions in greenhouse gas emissions however renewable energy investments can often have external costs and benefits which need to be taken into account if socially optimal investments are to be made this paper attempts to estimate the magnitude of these external costs and benefits for the case of renewable technologies in scotland a country which has set particularly ambitious targets for expanding renewable energy the external effects we consider are those on landscape quality wildlife and air quality we also consider the welfare implications of different investment strategies for employment and electricity prices the methodology used to do this is the choice experiment technique renewable technologies considered include hydro on shore and off shore wind power and biomass welfare changes for different combinations of impacts associated with different investment strategies are estimated we also test for differences in preferences towards these impacts between urban and rural communities and between high and low income households

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

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

market structure and buyer behaviour price adjustment in a multi object progressive oral auction abstract working within the framework of an english or progressive oral auction with multiple unit trading the study addresses the question of the effect on price behaviour of variations in market size in the sense of the number of equal sized market competitors prices are shown to converge to near competitive equilibrium levels upon replication whatever the market size however by extending the focus of the study beyond equilibrium to the market behaviour revealed during the adjustment or disequilibrium phase of the market it is possible to advance some conjectures on the nature of the equilibrating processes

strategic buyers and exclusionary contracts this paper characterizes equilibrium exclusionary contracts between buyers an incumbent firm and a potential entrant when buyers can either vertically integrate or contract with the outside entrant in this setting exclusionary contracts are generally shown to be efficient and to deter inefficient entry that would otherwise occur with multiple unorganized buyers equilibrium contracts are shown to take a divide and conquer form and in some cases to deter some efficient entry in such cases efficient contracting can be restored by a policy that prohibits price discrimination and gives agents free reign to sign exclusionary agreements copyright 1994 by american economic association

war of attrition evidence from a laboratory experiment on market exit i introduction young industries often undergo a process of shakeout gort and klepper 1982 and klepper 1996 attracting excess firms and gradually shedding them over time more mature industries are likewise often forced to contract in the face of recession or product specific negative demand shocks when an overcrowded industry is forced to shrink which firms exit and which ones survive the conventional answer in economics is that overcrowded industries tend to shed inefficient firms and retain efficient ones we might call this survival of the most efficient a process analogous to natural selection that can adaptively improve the efficiency of industries over time nelson and winter 1982 fudenberg and tirole 1986 model firms exit decisions in overcrowded duopoly markets as wars of attrition and show that the intuition of survival of the most efficient has merit even if firms have little information regarding their costs relative to their competitors however the equilibrium of their game is complex involving a solution to a system of differential equations since neither fortune 500 chief executive officers in the naturally occurring markets nor undergraduate participants in laboratory markets deliberately solve differential equations when deciding whether or not to exit a declining market it is an open question as to how well fudenberg and tirole s rational reconstruction of the exit decision corresponds to the facts of how people make such decisions we report the results of a laboratory experiment designed to answer this question nearly 200 subjects in 16 sessions participated in a total of 3 800 wars of attrition based on fudenberg and tirole s model at the beginning of each period subjects were randomly paired and given a private cost draw that usually induced negative net per second payoffs in a shared market and positive net payoffs per second in monopoly subjects then decided in real time whether and when to exit the market never to return monotonic equilibrium strategy functions predict higher cost inefficient participant exit at an earlier time than their lower cost competitor that is the relatively efficient competitor survives in the market we find that fudenberg and tirole s model organizes our data surprisingly well especially considering its complexity we observe exit by the higher cost firm in 76 of cases when differences between the costs faced by firms are substantial the rate of efficient exit rises to nearly 100 the data on exit times are likewise quite close to the point predictions particularly in the crucial higher portion of the cost distribution that generally governs exit times the median deviation from equilibrium exit times falls to zero by the end and on average subjects earn payouts identical to those predicted in equilibrium our design permits tests of two other conjectures in fudenberg and tirole first our data supports fudenberg and tirole s core comparative static prediction that a decrease in the ex ante likelihood of actually being in a war of attrition leads to an increase in the speed of exit 1 second half of our sessions use costs framed as fixed costs suffered while in the market and half use costs framed as opportunity costs earned by exiting the market there is no evidence that this treatment variable affects exit behavior this isomorphism between gains and losses predicted by standard theory stands in stark contrast to evidence from previous individual decision making experiments suggesting asymmetries in how people react to potential losses and potential gains although wars of attrition have an important place in the game theoretic literature there are surprisingly few experimental studies directly relating to them 2 3 bilodeau childs and mestelman 2004 study a three player full information war of attrition framed as a volunteer game and report widespread failure of equilibrium predictions the predicted volunteer in a subgame perfect nash equilibrium only volunteers 41 of the time

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

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

a trait based model of the potential demand for a genetically engineered food crop in a developing economy we predict the potential demand of smallholder farmers for genetically transformed varieties of a food crop the cooking banana of the east african highlands farmer demand for planting material is derived in an agricultural household model that accounts for variety traits and missing markets the demand for candidate host varieties is predicted using a zero inflated poisson zip regression system the fitted model is used to illustrate the sensitivity of farmer demand for improved planting material to a investments in research and development represented by the effectiveness of gene insertion and expression and b other public investments in education extension and market infrastructure that support diffusion by comparing the characteristics of agricultural households we demonstrate that the choice of host variety can have social consequences favoring one rural population compared with another clients for transgenic banana planting material are likely to be poorer subsistence oriented farmers in areas greatly affected by biotic constraints a model of this type might be useful in assessing the investments needed to support the systematic dissemination of improved planting material the approach can be generalized to other crop biotechnologies for smallholder farming systems particularly in developing economies

incentives and careers in academia theory and empirical analysis we study career concerns in italian academia we mould our empirical analysis on the standard model of contests formalised in the multi unit all pay auction the number of posts the number of app

measuring heterogeneous preferences for cattle traits among cattle keeping households in east africa this study employs mixed logit and latent class models to examine preferences for cattle traits with a focus on heterogeneity among cattle keepers using choice experiment data of 506 cattle keeping households in kenya and ethiopia the findings indicate the existence of preference heterogeneity based on cattle production systems highly valued cattle traits for the cropping systems include traction fitness and trypanotolerance while traits associated with herd increase are considered important in pastoral systems considering heterogeneity within population segments provides a framework for adapting breeding policy interventions to specific producer segments by integrating preferred traits in a breed improvement program

a hedonic approach to estimating the supply of variety attributes of a subsistence crop the article extends the household hedonic model by estimating a supply function for variety attributes of a subsistence crop in a developing economy the model is applied to bananas in uganda making use of disaggregated data on variety specific farm gate banana bunch prices and attributes while accounting for the semisubsistence nature of banana producing households the article is motivated by the need to understand the attribute trade offs made by farmers at the farm gate in light of targeted variety improvement efforts and their impact on banana markets whether variety improvement will pay off at the market level requires a more detailed examination of the relative worth of banana attributes within the structure of consumer preferences and production technologies related to bananas in uganda the results confirm the importance of consumption and production attributes in selling behavior quality and bunch size are found to be complements at the farm gate banana bunches that capture a premium at the market will be those that provide bundles of desirable consumption and production attributes simultaneously by revealing important price attribute relationships the findings provide guidance for crop improvement efforts and diversification choices while taking into account implicit market signals for output attributes

exclusionary pricing when scale matters we consider an incumbent firm and a more efficient entrant both offering a network good to several asymmetric buyers and both being able to price discriminate the good has positive value to buyers only if the network size exceeds a certain threshold the incumbent s installed base guarantees this critical size to the incumbent while the entrant needs to attract enough new buyers to meet this threshold we show that price discrimination in the various forms it may take reduces the set of achievable socially efficient entry equilibria and discuss the policy implications of this result

a simple theory of predation abstractwe propose a simple theory of predatory pricing based on incumbency advantages scale economies and sequential buyers or markets the prey needs a critical scale to be successful the incumbent or predator has an initial advantage and is ready to make losses on earlier buyers to deprive the prey of the scale it needs thus making monopoly profits on later buyers several extensions are considered including cases in which scale economies exist because of demand externalities or two sided market effects and in which markets are characterized by common costs conditions under which predation may or may not take place in actual cases are also discussed

multi dimensional reference dependent preferences in sealed bid auctions how most laboratory experiments differ from the field abstract we study bidding behavior in first and second price sealed bid auctions with loss averse agents our model predicts overbidding in first price induced value auctions consistent with evidence from most laboratory experiments substantially different bidding behavior could result in commodity auctions where money and auction item are consumed along different dimensions of the consumption space differences also result in second price auctions our study thereby indicates that transferring qualitative behavioral findings from induced value laboratory experiments to the field may be problematic if subjects are loss averse

robustness of bidder preferences among auction institutions i introduction the answer to the question of how bidders choose to enter one auction versus an alternative competing auction is important to understand in providing a complete picture of the nature of endogenous entry decisions into auctions the issue of how a bidder chooses which among alternative auctions to enter as well as whether to enter an auction at all is of substantial importance to auctioneers attempting to attract bidders to their auctions there is a growing literature addressing issues in endogenous entry in auctions there are several papers such as engelbrecht wiggans 1993 pevnitskaya 2004 and palfrey and pevnitskaya 2008 that consider the decision of whether to enter an auction or not and study the effect of endogenous entry on bidding behavior there is a much larger group for example harstad 1990 engelbrecht wiggans 1993 levin and smith 1994 mcafee 1993 and mcafee and mcmillan 1987 that considers competition between auctioneers in which the auctioneers are competing along some characteristic such as entry price we consider the case in which auctioneers may be competing with each other based on the choice of auction mechanism our interest is in the degree to which the auction mechanism itself might impact the entry decisions of potential bidders of course there would be a direct pecuniary impact of the mechanism in that bidders should be more likely to enter auction mechanisms that they believe allow them to get lower prices but there may be other cognitive issues in regard to the structure of the mechanism that may also impact the choice behavior in ivanova stenzel and salmon iss 2004a we introduced an experimental design aimed at eliciting and measuring preferences subjects might possess for different auction institutions and applied the design to testing bidder preferences between ascending a dynamic mechanism and sealed bid first price a static mechanism auctions it seems reasonable to expect bidders to have preferences between these two auction mechanisms due to the strategic differences between them in a first price auction the winner pays a price equal to his own bid whereas in the ascending auction he pays a price that is an increment above the second highest bid these differences might result in difficulty of deciding how to bid and in the possibility of experiencing some form of regret 1 the design involved having subjects make a choice between entering into a two bidder sealed bid first price auction versus a two bidder ascending auction each with different entry prices by varying the entry prices we could measure the subjects willingness to pay for either auction our main finding in the paper was that while subjects exhibited strong preferences for the ascending auction at equal entry prices they were not willing to pay up to the expected profit difference between the two auctions to participate in an ascending auction thus they ended up entering the supposedly less preferred sealed bid first price auction even in situations in which they would expect to make a higher net surplus including the cost of the entry fee by entering into the ascending auction instead that paper proposed one possible answer to the puzzle that involved assuming that bidders were risk averse in their bidding behavior and then risk averse to the same degree in their auction choice behavior this explanation worked because neither risk averse nor approximately risk neutral bidders should be expected to pay much to enter into an ascending auction instead of a sealed bid first price auction just as we observed in the experiment for the most risk averse bidders this is because while they bid the highest in the first price auction and therefore expected little surplus in the event that they win they consequently end up winning with higher probability than less risk averse bidders this is a trade off risk a verse bidders are willing to accept and consequently it is easy to show that highly risk averse bidders should not be willing to pay much to get into the more lucrative though risky ascending auction

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

discounts as a barrier to entry abstract to what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry we show that off list price rebates that do not commit buyers to unconditional transfers like the rebates in eu commission v michelin ii for instance cannot be anticompetitive this is true even in the presence of cost uncertainty scale economies or intense downstream competition all three market settings where exclusion has been shown to emerge with exclusive dealing contracts the difference stems from the fact that unlike exclusive dealing provisions rebates do not contractually commit retailers to exclusivity when signing the contract jel d43 d86 k21 l13 l14 l42 l60

the all pay auction with nonmonotonic payoff i model innovation contests as an all pay auction in which it is possible not to achieve successful innovation despite costly r d investments and as a result there is no winner in such a case the winning payoff turns out to be nonmonotonic in own bid i derive the sufficient conditions for the existence of pure strategy equilibria and fully characterize the nondegenerate mixed strategy equilibrium in the mixed strategy equilibrium the support of the low value bidder is not continuous and both the high value and the low value bidders place an atom in the distinct lower bound of their respective support under symmetric valuation both bidders place an atom at zero these results can explain why one does not observe very low quality innovation in real life or why even symmetric firms may stay out of an innovation contest

english auctions with resale an experimental study i design and test a simple english auction and two english auctions with resale but with different informational backgrounds all three treatments theoretically have the same equilibrium i find however that the possibility of resale alters behavior significantly in the two treatments with resale subjects deviated from both the nash prediction and the common results about bidding behavior in english auctions subjects tend to overbid when they are certain they can reap the whole surplus in the resale market i employ different models like qre and levels of reasoning and conclude that overbidding can be explained as a rational response to the noisy environment in markets with human participants that is as rational decision making when anticipating others to make errors when the outcome of the resale market is not certain there is significant signaling behavior and auction prices tend to be lower than the nash prediction

eliciting subjective probabilities with binary lotteries abstract we evaluate a binary lottery procedure for inducing risk neutral behavior in a subjective belief elicitation task prior research has shown this procedure to robustly induce risk neutrality when subjects are given a single risk task defined over objective probabilities drawing a sample from the same subject population we find evidence that the binary lottery procedure also induces linear utility in a subjective probability elicitation task using the quadratic scoring rule we also show that the binary lottery procedure can induce direct revelation of subjective probabilities in subjects with popular non expected utility preference representations that satisfy weak conditions

learning to bid the design of auctions under uncertainty and adaptation we examine auction design in a context where symmetrically informed adaptive agents with common valuations learn to bid for a good despite the absence of private valuations asymmetric information or risk aversion bidder strategies do not converge to the bertrand nash equilibrium strategies even in the long run deviations from equilibrium strategies depend on uncertainty regarding the value of the good auction structure the agents learning model and the number of bidders although individual agents learn nash bidding strategies in isolation the learning of each agent by flattening the best reply correspondence of other agents blocks common learning these negative externalities are more severe in second price auctions auctions with many bidders and auctions where the good has an uncertain value ex post

modelling recreation demand using choice experiments climbing in scotland this paper is concerned with the use of thechoice experiment method for modelling thedemand for recreation using the example ofrock climbing in scotland we begin byoutlining the method itself including itstheoretical and econometric underpinnings datacollection procedures are then outlined wepresent results from both nested and non nestedmodels and report some tests for theimplications of choice complexity andrationality finally we compare our resultswith a revealed preference data model based onthe same sample of climbers

decision making when choices are complex a test of heiner s hypothesis this paper explores heiner s hypothesis concerning a gap between the cognitive ability of decision makers and the difficulty of decisions the c d gap we discuss the implications of decision heuristics for coefficient estimates when uncertainty is faced by decision makers where the level of uncertainty varies with complexity statistical analysis strongly supports the presence of a c d gap and provides evidence supporting the use of decision heuristics the results of both direct and indirect methods suggest that mixed decision strategies may be used we also find that complexity effects can have important implications for welfare analysis

exclusive dealing and entry when buyers compete rasmusen et al 1991 and segal and whinston 2000 show that an incumbent monopolist might prevent entry of a more efficient competitor by exploiting externalities among buyers we show that their results hold only when downstream competition among buyers is weak under fierce downstream competition if entry took place a free buyer would become more competitive and increase its output and profits at the expense of buyers that sign an exclusive deal with the incumbent anticipating that orders from a single buyer would trigger entry no buyer will sign the exclusive deal and entry will occur this result is robust across different specifications of the game jel k21 l12 l42

waiting line auctions if prizes are to be awarded simultaneously at a specified time on a first come first served basis then individuals who queue for them will choose different waiting times through their arrivals at the queue this choice of arrival time at a queue is similar to the choice of a sealed tender in an auction an equilibrium for this waiting line auction is obtained here using methods for analyzing sealed tender auctions when individuals are risk neutral it is shown that several alternative waiting line allocation procedures result in the same transactions cost associated with waiting in line

eliciting and utilizing willingness to pay evidence from field trials in northern ghana we utilize the becker degroot marschak 1964 mechanism to estimate the willingness to pay for clean drinking water technology in northern ghana the bdm mechanism has attractive properties for empirical research allowing us to directly estimate demand compute heterogeneous treatment effects and study the screening and causal effects of prices with minor modifications to a standard field experiment setting we demonstrate the implementation of bdm along these three dimensions compare it to the standard take it or leave it method for eliciting willingness to pay and discuss practical issues for implementing the mechanism in true field settings jel classifications c93 d12 d82 l11 l31

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

valuing genetic resources in peasant economies the case of hairless creole pigs in yucatan abstract we report the results of a choice experiment study to model preferences over a selection of breed traits of creole pigs the study was conducted amongst households of backyard producers and small farmers rearing this local breed in yucatan mexico hypothetical choice data were collected to estimate the preference of households over alternative pigs profiles whose attributes distinguish creole pigs from the potentially more productive yet less adapted exotic breeds currently threatening to severely displace this locally adapted animal genetic resource angr the observed choices are employed to estimate a series of random utility models whose results are first tested for preference equality between households and small farmers then endogenous segmentation is allowed within households by means of latent class models stated preference based estimates are found to be of the same magnitude as revealed preference producers costs as a consequence the method is deemed to be appropriate for the valuation of non market functions in production estimates conditional on household characteristics are then presented and discussed

buyers miscoordination entry and downstream competition this article shows that buyers coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant if there were a single buyer or if all buyers formed a central purchasing agency coordination failures would be avoided and efficient entry would always occur more generally exclusion is less likely the lower the number of buyers for any given number of buyers exclusion is less likely the more fiercely buyers compete in the downstream market first intense competition may prevent miscoordination equilibria from arising second in cases where miscoordination equilibria still exist it lowers the maximum price that the incumbent can sustain at such exclusionary equilibria buyers have experienced increased concentration in many sectors in particular grocery retailing 1 2 this trend has triggered a wide debate on the effects of buyer power 3 we contribute to this debate by studying how concentration and competition among buyers affect the possibility of entry by a new upstream supplier in an industry characterised by scale economies in our model buyers fragmentation may lead to a situation where a new upstream firm does not manage to enter a market although endowed with lower marginal costs than an incumbent firm when several buyers decide independently from which supplier to purchase miscoordination equilibria may arise where all buyers buy from the incumbent even if the entrant sets a lower price if all buyers address the incumbent none of them has an incentive to deviate that is to switch to the entrant anticipating that a single order would not allow the

less fighting than expected experiments with wars of attrition and all pay auctions while all pay auctions are well researched experimentally we do not have much laboratory evidence on wars of attrition this paper tries to fill this gap technically there are only a few differences between wars of attrition and all pay auctions behaviorally however we find striking differences as many studies our experiment finds overbidding in all pay auctions in contrast in wars of attrition we observe systematic underbidding

the contingent valuation debate why economists should care t he contingent valuation method involves the use of sample surveys questionnaires to elicit the willingness of respondents to pay for generally hypothetical projects or programs the name of the method refers to the fact that the values revealed by respondents are contingent upon the constructed or simulated market presented in the survey a spirited and occasionally mean spirited battle over such methods is currently being waged involving competing factions within the federal government economists and lawyers representing business and environmental groups and interested academics as well at issue is a seemingly quite specific question should environmental regulations currently under development at both the department of the interior and the department of commerce sanction the use of the contingent valuation method in estimating the damage done by spills of oil chemicals or other substances covered by federal law more generally the debate raises broad questions about what economists have to say about the values that individuals place on public or private goods the two papers that follow this one make cases for and against the use of the contingent valuation method my aim here is to provide an overview of the technique and the debate surrounding it i also want to suggest why this debate should matter to economists both professionally and in their roles as citizens and consumers

monetary rewards and decision cost in experimental economics a survey of thirty one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows 1 several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models 2 in virtually all cases rewards reduce the variance of the data around the predicted outcome this is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction

workaholics and dropouts in organizations this paper reports the results of experiments designed to test the theory of the optimal composition of prizes in contests in the aggregate the behavior of subjects is consistent with that predicted by the theory but we find that such aggregate results mask an unexpected compositional effect on the individual level whereas theory predicts that subject efforts are continuous and increasing functions of ability the actual efforts of our laboratory subjects bifurcate lowability workers drop out and exert little or no effort and high ability workers try too hard this bifurcation which is masked by aggregation can be explained by assuming loss aversion on the part of the subjects jel c92 d44 d72 d82 j31

a latent class approach to investigating demand for genetically modified banana in uganda this study explores consumer acceptance and valuation of a genetically modified gm staple food crop in a developing country prior to its commercialization we focus on the hypothetical introduction of a disease resistant gm banana variety in uganda where bananas are among the most important staple crops a choice experiment is used to investigate consumer preferences for various attributes related to the banana such as bunch size technology producer benefit and price and examine their opinions on gm foodstuff choice data come from 421 banana consuming households randomly selected from three regions of uganda a latent class model is used to investigate the heterogeneity in consumers preferences for selected attributes related to the banana and to profile consumers who are more or less likely to accept gm bananas our results reveal that there is significant heterogeneity in consumer preferences across our sample gm bananas are valued the most by poorer households located in the rural areas of the eastern region these food insecure households would experience the highest benefits i e welfare gains from the commercial release of gm bananas in contrast urban consumers are less accepting of gm bananas and they would experience significant welfare losses if gm banana is released according to our welfare estimates both the total welfare benefits acquired by the gainers and the total welfare losses borne by the losers of this technology are significant and large these results suggest the need for further investigation of the overall welfare effects of the introduction of gm bananas on the ugandan society as a whole

auction institutional design theory and behavior of simultaneous multiple unit generalizations of the dutch and english auctions historically english and dutch auctions have been used for the exchange of single objects such as works of art or single lots of a good such as produce fish or cut flowers where these institutions have been used for the exchange of multiple units such as the australian wool auction using english rules successive lots of the good are sometimes sold sequentially at auction in some but not all instances this is because the goods are not identical even though the various lots may be close substitutes see penny burns 1985 where the goods are accepted universally as being homogeneous as in the securities markets multiple units are often commonly auctioned simultaneously in the securities industry orders are batched for simultaneous execution in multiple unit auctions in what are referred to as call markets that is the security is called for auction at a particular point in time this type of market is used on the stock exchanges of austria belgium france germany and israel some of these are verbal and some are sealed bid auctions although the u s organized exchanges are predominantly continuous rather than call markets except that call markets are used each day to open trading in each listed security there is a growing number of exceptions such as the proliferation since 1984 of auction preferred stock goldman sachs and co october 1984 and money market preferred stock lehman brothers july 1984 we now have dutch auction rate transferable securities called darts stated rate auction preferred stock or straps and many more after the initial subscription offering of this type of security the market is called every 49 days to reset the preferred dividend rate using a multiple unit auction the exchange of shares and the dividend determination is based on the array of stated dividend rates at which existing holders and potential new holders are willing to sell and or buy corresponding quantities the dividend rate and exchange of shares every 49 days is executed using the uniform price or competitive sealed bid mechanism vernon l smith et al 1980 the discussion to follow will be confined to this sealed bid form of the call market call markets provide temporal consolidation of trade orders or other forms of expressing the desire to buy and sell by comparison with continuous trading call markets offer both advantages and disadvantages robert a schwartz 1988 pp 442 6 the cited advantages include low cost of operating the exchange information aggregation and presumed pricing efficiency price stability individual trades which are thought to have a small impact on price reduced price uncertainty and finally nondiscriminatory pricing however there are offsetting disadvantages 1 the market is inaccessible except at the time of call 2 no bid offer contract or price information is available until the results of the call are announced and 3 there is transaction uncertainty because a submitted bid offer may be too low high to execute inside the supply demand cross these conditions are only partially alleviated if there is a secondary market between calls these disadvantages may be significant in september 1988 the wall street journal published an article on the failure of a call market for the auction rate preferred stock economic science laboratory university of arizona tucson arizona this material is based upon work supported by the national science foundation under grant no ses 8320121

the effects of payoff magnitude and heterogeneity on behavior in 2 2 games with unique mixed strategy equilibria the logit version of quantal response equilibrium predicts that equilibrium behavior in games will vary systematically with payoff magnitudes if all other factors are held constant including the nash equilibria of the game we explore this in the context of a set of asymmetric 2x2 games with unique totally mixed strategy equilibria the data provide little support for the payoff magnitude predictions of the logit equilibrium model we extend the theoretical quantal response equilibrium model to allow for heterogeneity and find that the data fit the heterogeneous version of the theory significantly better

coordination and discrimination in contracting with externalities divide and conquer abstract the paper studies bilateral contracting between n agents and one principal whose trade with each agent generates externalities on other agents it examines the effects of prohibiting the principal from i coordinating agents on her preferred equilibrium and ii making different contracts available to different agents these effects depend on whether an agent is more or less eager to trade when others trade more the prohibitions reduce the aggregate trade in the former case and have little or no effect in the latter case the inefficiencies under different contracting regimes are linked to the sign of the relevant externalities and are shown to be typically reduced by both prohibitions

price discrimination in input markets quantity discounts and private information we consider a monopolistic supplier s optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs under discriminatory pricing downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs under uniform pricing the same wholesale tariff is offered to all downstream firms in contrast to the extant literature on price discrimination with nonlinear wholesale tariffs we find that banning discriminatory wholesale contracts often improves welfare this also holds if the manufacturer is not an unconstrained monopolist moreover uniform pricing increases downstream investments in cost reduction in the long run

customer coalitions monopoly price discrimination and generic entry deterrence abstract this paper analyzes the interplay between a profit maximizing monopolist and a set of consumers who are able to form coalitions that bargain with the monopolist and or integrate into production we show that the monopolist will deter the formation of these countervailing coalitions through strategic selection of generic limit price offers to each consumer these limit prices are derived as subgame perfect equilibria in two alternative models of customer monopoly interplay in both models price discrimination emerges in environments wherein it has previously been considered unprofitable welfare analysis of the equilibria demonstrates the procompetitive effects of potential customer coalitions and generally provides an efficiency based motivation for a government ban on price discrimination

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

rural versus urban preferences for renewable energy developments development of renewable energy resources such as wind farms and hydro electric schemes are being promoted as a new method of expanding and diversifying employment in rural areas however such energy projects are associated with a range of environmental impacts which might be detrimental to other economic activities such as those based on nature tourism the authors use a choice experiment to quantify peoples preferences over environmental and employment impacts that may result from the deployment of renewable energy projects in rural areas of scotland focussing in particular on any differences between the preferences of urban and rural dwellers and on heterogeneity within these groups rural and urban households are shown to have different welfare gains which are dependent on the type of renewable energy technology and on the scale of project under consideration

coalition proof equilibrium we characterize the agreements that the players of a noncooperative game may reach when they can communicate prior to play but they cannot reach binding agreements a coalition proof equilibrium is a correlated strategy from which no coalition has an improving and self enforcing deviation we show that any correlated strategy whose support is contained in the set of actions that survive the iterated elimination of strictly dominated strategies and weakly pareto dominates every other correlated strategy whose support is contained in that set is a coalition proof equilibrium consequently the unique equilibrium of a dominance solvable game is coalition proof journal of economic literature classification

is exclusionary pricing anticompetitive in two sided markets this paper studies the competitive effects of exclusionary pricing in two sided markets while formally showing that below cost pricing on one market side can allow an incumbent firm to exclude a potential rival which does not have a customer base yet the proposed model does not necessarily imply that below cost pricing in such markets should be taken as anti competitive conduct instead i find that in sufficiently asymmetric two sided markets exclusion is always beneficial and if anything there is too little of it in the sense that there are cases in which there is inefficient entry further prohibiting below marginal cost pricing may destroy some socially efficient exclusion and worsen the problem of excessive or inefficient entry

modeling preference heterogeneity in stated choice data an analysis for public goods generated by agriculture stated choice models based on the random utility framework are becoming increasingly popular in the applied economics literature the need to account for respondents preference heterogeneity in such models has motivated researchers in agricultural environmental health and transport economics to apply random parameter logit and latent class models in most of the published literature these models incorporate heterogeneity in preferences through the systematic component of utility an alternative approach is to investigate heterogeneity through the random component of utility and covariance heterogeneity models are one means of doing this in this article we compare these alternative ways of incorporating preference heterogeneity in stated choice models and evaluate the sensitivity of estimated welfare measures to which approach is selected we find that a latent class approach fits our data best but all the models perform well in terms of out of sample predictions finally we discuss what criteria a researcher can use to decide which approach is most appropriate for a given data set

rational frenzies and crashes most markets clear through a sequence of sales rather than through a walrasian auctioneer because buyers can decide whether to buy now or later rather than only now or never their current willingness to pay is much more sensitive to price than the demand curve is a consequence is that markets will be extremely sensitive to new information leading to both frenzies in which demand feeds on itself and crashes in which price drops discontinuously the paper also shows how a result from static auction theory the revenue equivalence theorem can be applied to solve for a dynamic price path

contests with money and time experimental evidence on overbidding in all pay auctions competition for a prize frequently takes the form of dedicating time toward winning a contest those who spend more time become more likely to obtain the prize we model this competition as an all pay auction under incomplete information and report an experiment in which expenditures and rewards are in terms of time in the experiment subjects must stay in the laboratory doing nothing for an initially prespecified length of time however they can bid in terms of time to leave early the auction has an all pay structure so that if an individual does not submit the highest bid within her group she must stay for the additional time that she bid we correlate behavior in this game with behavior in an isomorphic all pay auction played with money bids we also consider how two measures of sophistication the cognitive reflection test crt score and performance on a probability calibration task correlate with behavior we find strong similarities in overall behavior between the auctions conducted with money and with time bidding greater than equilibrium levels is typical and as a consequence average earnings are negative in both auctions thus the result that there is overdissipation of rent in all pay auctions extends to competition in terms of time

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

rationalizable bidding in first price auctions abstract we analyze the consequences of strategically sophisticated bidding without assuming equilibrium behavior in particular we characterize interim rationalizable bids in symmetric first price auctions with interdependent values and affiliated signals we show that 1 every nonzero bid below the equilibrium is rationalizable 2 some bids above the equilibrium are rationalizable 3 the upper bound on rationalizable bids of a given player is a nondecreasing function of her signal in the special case of independent signals and quasi linear valuation functions i the least upper bound on rationalizable bids is concave hence ii rationalizability implies substantial proportional shading for high valuations but is consistent with negligible proportional shading for low valuations we argue that our theoretical analysis may shed some light on experimental findings about deviations from the risk neutral nash equilibrium

valuing financial health and environmental benefits of bt cotton in pakistan data from a farm survey and choice experiment are used to value the benefits of bt cotton in pakistan unlike previous research on the economic impacts of bt which mostly concentrated on financial benefits in terms of gross margins we also quantify and monetize positive externalities associated with technology adoption due to lower chemical pesticide use on bt cotton plots there are significant health advantages in terms of reduced incidence of acute pesticide poisoning and environmental advantages in terms of higher biodiversity and lower soil and groundwater contamination these positive externalities are valued at us 79 per acre of which half is attributable to health and the other half to environmental improvements adding average gross margin gains of us 204 results in an aggregate benefit of us 283 per acre of bt or us 1 7 billion for the total bt cotton area in pakistan

recreation demand models with taste differences over people we estimate random parameter logit models of anglers choice of fishing site the models generalize logit by allowing coefficients to vary randomly over anglers rather than being fixed the models do not exhibit the restrictive independence from irrelevant alternatives property of logit and can represent any substitution pattern estimation explicitly accounts for the fact that the variation in coefficients over anglers induces correlation in unobserved utility over trips by the same angler willingness to pay for improved fish stock and the value to anglers of specific sites are calculated from the models and compared with the estimates obtained from a standard logit model

the implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes abstract in this article we study the heterogeneity of habit strength in households demand for regular carbonated sweetened beverages csbs and beer in the united states a demand model that nests a smooth transition function is used to describe habit based consumption patterns revealing heterogeneous strengths of habits among households we find that more habitual consumers those with a strong preference for a particular product are not as sensitive to price or expenditure as the aggregate population this finding is further supported by simulations of the potential effects of soda and beer taxes we find the aggregate response to soda and beer taxes is smaller than when the influence of habit is assumed to be homogeneous

price discrimination competition and regulation this paper analyzes some effects of price discrimination policy in a model where a dominant incumbent firm faces an endogenous degree of competition in one of its two markets banning price discrimination tends to encourage more entry which is desirable if the entrant is as efficient as the incumbent but has ambiguous welfare effects more generally prices in both markets might fall price discrimination policy under different forms of price regulation is also examined if the incumbent s average price level is regulated then allowing price discrimination can lead to pricing below marginal cost with possible anticompetitive consequences

all pay auctions and group size grading on a curve and other applications we model contests with a fixed proportion of prizes such as a grading curve as all pay auctions where higher effort weakly increases the likelihood of a prize we find theoretical predictions for the heterogeneous effect auction size has on effort from high and low types we test our predictions in a laboratory experiment that compares behavior in two bidder one prize auctions with behavior in 20 bidder 10 prize auctions we find a statistically significant 11 8 increase in aggregate bidding when moving from the small to large auction the impact is heterogeneous as the auction size increases low types decrease effort but high types increase effort additionally the larger auction provides a stronger rank correlation between effort and ability awarding more prizes to the higher skilled and improving the efficiency of prize allocation

experimental comparisons of auctions under single and multi unit demand i introduction the study of multiple unit auctions is important because of their widespread use and the high value of goods sold examples include auctions of u s treasury debt cut flowers wine foreign exchange and other financial and monetary instruments moreover since auctions are often proposed by economists as a method of sale for other goods as in mcmillan 1994 the use of auctions can be expected to increase in the future many different auction rules are used to sell these diverse commodities and auction rule changes are often suggested usually with the intention of increasing revenue or improving the allocations and thus there is a considerable and increasing number of known auction formats evaluating new or comparing different auction mechanisms using field tests can be very costly and risky however experimental methods can and have been used by economists to study the behavioral characteristics of different auction procedures kagel 1995 provides a recent comprehensive survey most experimental studies consider the behavior of auctions when there is a single unit to be sold a few studies such as cox et al 1984 1985 and mccabe et al 1990 1991 study multiple unit auctions in environments in which each bidder demands at most one object from a set of identical objects being sold the studies of smith 1967 belovicz 1979 miller and plott 1985 and burns 1985 consider multi unit demand environments these are environments in which bidders have demand for multiple identical units and are permitted to purchase multiple units of the commodity sold the extension to multi unit demand is important since the presence of multi unit demand is a characteristic of many auctions in the field including all of the examples above in this study we consider the behavior of two types of multi unit auction under both single unit and multi unit demand we construct a laboratory environment which we use to study an english clock ec which is a special type of english auction and a sealed bid auction with lowest accepted bid pricing sb in the sb each bidder pays a per unit price equal to the lowest accepted bid the ec was chosen because it is known to provide highly efficient allocations in auctions of single unit goods and therefore is likely to be suggested for many field applications the sb was chosen because of its widespread use which makes its outcomes a useful basis of comparison for the outcomes of the english clock auction 1 however we do not attempt to represent a particular field situation here instead since our interest is in understanding the basic properties of the auctions we chose an experimental design that enables us to make simple comparisons across treatments and with previous and possibly future studies the design enables us to perform simple testing of game theoretic models in some of the treatments in our view the difference between single and multi unit demand is critical as we discuss in section ii many of the results of auction theory that are valid in single unit demand environments no longer apply in multi unit demand environments suggesting that the observed behavior of auctions might also differ between the two environments therefore we isolate the effects of multi unit demand by conducting single unit demand experiments under identical market demand and supply conditions as the multi unit demand experiments these and other aspects of the experimental design are described in detail in section iii the results and a discussion are given in sections iv and v respectively ii institutions theory and previous studies the english clock auction this variant of the english auction was modeled by milgrom and weber 1982 and studied by mccabe et al 1990 1991 in our version the auction begins with all bidders publicly and simultaneously announcing their initial quantity demanded at price zero if there is excess demand the price is increased by a small increment and the bidders then announce new quantities demanded

behavior in all pay auctions with incomplete information abstract this paper analyzes the behavior of single unit all pay auctions within the independent private values environment in the laboratory we study revenue individual bidding behavior and efficiency in relation to theoretical benchmarks and to a similar study of winner pay first price sealed bid auctions we conclude that the all pay auction yields significantly higher revenue than both the risk neutral bayesian equilibrium and the winner pay auction bidders decisions move closer to equilibrium levels over time in the auction

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press

applying partial least squares to model genetically modified food purchase intentions in southern spain consumers abstract consumers potential reactions towards genetically modified gm foods influence their commercial feasibility and determine the decisions of economic agents this paper studies the underlying factors involved in determining consumers choice behaviour towards gm foods in order to develop an integrated analytical framework reliable information about consumers behaviour towards gm foods should lead to the design of political strategies intended to make citizens feel safe in their purchasing choices in addition there is an analysis of behavioural differences due to consumers objective knowledge levels the research was performed in southern spain using variance based structural equation modelling namely the partial least squares pls regression technique the results support those arguments that connect consumers behavioural intentions attitudes and different factors involved in determining consumer choice because attitudes towards gm foods link consumer purchasing intentions to the perceived benefits and risks posed by gm foods furthermore there are some insights into the moderating role played by the consumers level of knowledge in their purchase intentions to gm food

exclusionary pricing in markets with interdependent demands in this paper i use a simple model to study the competitive effects of exclusionary pricing involving two markets related by a positive demand externality it is shown that below cost pricing on one of these markets can allow an incumbent firm to exclude from both markets a more efficient rival which does not have a customer base yet however when exclusion occurs it is always socially optimal in addition under some circumstances there is inefficient entry the entrant wins both markets while the social optimum would require the incumbent to win them