an r d race with knowledge accumulation i develop a model of an r d race with knowledge accumulation my model does not inherit the memorylessness property of the exponential distribution that troubles existing models of r d races hence firms knowledge stocks are no longer irrelevant to their behavior during the r d race and knowledge accumulation has strategic implications in this more general setting i obtain results that stand in marked contrast to the previous literature in particular under some conditions the firm that is behind in the race engages in catch up behavior this pattern of strategic interactions action reaction is consistent with empirical research copyright 2003 by the rand corporation

three lenses on the multinational enterprise politics corruption and corporate social responsibility scholars who analyze multinational enterprises mnes recognize the complex relationship between international business ib and society however compared with other ib topics research on politics corruption and corporate social responsibility three lenses on the mne remains somewhat embryonic with unresolved issues regarding frameworks measurement methods and theory this presents unique opportunities for integration and extension of disciplinary perspectives which we explore in this article we provide an introduction to potential linkages across these three lenses an agenda for additional theoretical and empirical research and a review of the papers in the jibs focused issue

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

the political roots of corporate social responsibility this article argues that whether and how a firm chooses to adopt corporate social responsibility csr initiatives is conditional in part upon the domestic political institutional structures present in its home market it demonstrates that economic globalization has increased the pressure applied to companies to develop csr policies that might help overcome specific governance gaps associated with the globalization phenomenon drawing upon an examination of domestic institutions and overall political structure it argues that the political conditions and expectations present in a company s home market will condition whether a firm might pursue csr activity for home markets it is posited that perceived electoral salience will be filtered through government type and ideology and state societal structures will influence if and how firms will use csr specific arguments are developed from these categorizations the article concludes with a discussion of how researchers might further explore links between csr domestic political structures and corporate political activity

the strategic equivalence of rent seeking innovation and patent race games abstract we establish the strategic equivalence of a variety of rent seeking contests innovation tournaments and patent race games the results allow us to disentangle negative and positive externalities and to apply theorems and results intended for rent seeking games to other games and vice versa we conclude with several examples that highlight the practical utility of our results

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

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

globalisation economic geography and the strategy of multinational enterprises the intention of this paper is to review the literature linking ownership and location strategies to economic geography and theories of globalisation and to explore new areas of research this paper examines globalisation in terms of conflicts between markets and economic management and suggests that the differential pace of globalisation across markets presents a number of challenges to policy makers in local national and regional governments and in international institutions in examining the changing location and ownership strategies of mnes it shows that the increasingly sophisticated decision making of managers in mnes is slicing the activities of firms more finely and in finding optimum locations for each closely defined activity they are deepening the international division of labour ownership strategies too are becoming increasingly complex leading to a control matrix that runs from wholly owned units via fdi through market relationships such as subcontracting including joint ventures as options on subsequent decisions in a dynamic pattern the input of lessons from economic geography is thus becoming more important in understanding the key developments in international business the consequences of the globalisation of production and consumption represent political challenges and reaction against these changes has led to a questioning of the effects of global capitalism as well as to its moral basis these four issues are closely intertwined and present a formidable research agenda to which the international business research community is uniquely fitted to respond

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

cognitive ability and earnings performance evidence from double auction market experiments abstract our goal in this paper is to understand how heterogeneity in people s cognitive ability leads to different market behavior and thus different market performance to do this subjects with heterogeneous working memory capacity wmc were placed in a double auction environment to compete against artificial traders we considered two treatments which differ in the artificial traders the artificial traders are truth telling in the first treatment but demonstrate adaptive trading behavior in the second one our results show that working memory capacity has a significantly positive effect on subjects market performance and the performance gap caused by cognitive ability while narrowing over time remains significant by the end of experiment we find that differences in subjects performance resulted from their behavior high wmc subjects were better at exploiting extra profit opportunities and avoiding unprofitable transactions and they tended to underbid more than those with lower wmc among the five constituent abilities of wmc we find that it is distinctive abilities which contribute to the overall significance in these two treatments for the treatment involving truth telling traders the relevant factor is the ability of simultaneous processing and storing information whereas for the treatment involving adaptive traders the only one that matters is subjects ability to coordinate elements into structures

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

variable base budgeting for r d an issue of theoretical and practical importance to r d managers is the proper allocation of an organization s resources between the periodic selection and budgeting of r d projects and the implementation of these projects one possibility is to consider previous allocations as an established base and to restrict the attention of r d managers to an examination of any subsequent deviations from the base the advantage of this strategy often called incremental budgeting is that it focuses managerial and analytical efforts on a few current decisions a second possibility called zero base budgeting is to ignore previous allocations and to reexamine all feasible alternatives at the start of each budget cycle this paper presents three models a static model and two dynamic models in which incremental and zero base allocation procedures are viewed as extremes between which there may be a point of diminishing returns the models are risk return models in which a total budget is allocated between the budgeting effort which reduces risk and the budgeted activities which increase expected return the budget for each activity during each time stage is partitioned into two components a base and an increment the expected return for each activity is a concave increasing function of its budget and the risk depends quadratically on the base and in a geometrically decreasing fashion on the bases in previous stages the cost of evaluation is proportional to the increment and the total cost of all activities when added to the budgets for the activities cannot exceed a fixed total budget zero base budgeting means setting the base to zero so that the budget equals the increment plus the cost of evaluation it is shown that a policy of zero base budgeting during all time stages is nonoptimal but an instance of zero base budgeting during a single stage may be optimal

a sequential model of r d investment over an unbounded time horizon a markov model of sequential r d investment where successful firms are assumed to have an advantage in related follow on r d is formulated and a solution approach is given under this assumption profit maximizing firms must consider the effect of r d investments on their future market position as well as the direct monetary returns from innovation under certain conditions free entry is shown to lead to excessive competition and overinvestment by the firms this market failure can be corrected through a three part policy of restricted patent lives subsidies to firms for consecutive successes and entry taxes in addition to these policy conclusions the modeling and solution approaches presented here provide a framework for further research efforts to incorporate market position into project selection and budget allocation models

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

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

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

political behavior social responsibility and perceived corruption a structuration perspective this study unites the three lenses political behavior corporate social responsibility and corruption and evaluates the way in which multinational enterprises mnes manage political and social forces in a foreign emerging market using the theory of structuration as the conceptual foundation we propose that an mne s propensity to cooperate with the host government is positively related to its philanthropic contribution and resource accommodation whereas its propensity to be assertive with the host government is positively associated with its emphasis on ethics and organizational credibility we argue that when perceived corruption in the business segment increases an mne s propensity to cooperate and be assertive with the government decreases its focus on ethics heightens and its philanthropic contribution diminishes as to the three way interactions when perceived corruption in the business segment increases mnes that focus more on ethics have a greater propensity to use arm s length bargaining to deal with the government whereas those focusing less on ethics have a greater propensity to use social connections to deal with the government our analysis of sample mnes in china generally supports these propositions

competitivity in auction markets an experimental and theoretical investigation the authors report successive rounds of theory and laboratory experiments investigating price taking behavior and market efficiency they focus on the impact of structural parameters as well as trading institution the structural parameters involve noncompetitive supply and demand and a new odd lot trading procedure for divisible goods the trading institutions include the continuous double auction and the one shot clearinghouse as well as a new quantities only clearinghouse institution the authors present and justify an as if complete information theory that explains the competitive outcomes and that correctly predicts highly noncompetitive outcomes in quantities only clearinghouse markets copyright 1995 by royal economic society

political governance civil liberties and human capital evaluating their effect on foreign direct investment in emerging and developing economies we study the influence of a country s political governance on its attractiveness to foreign direct investors we argue that democracy is not a unidimensional concept and that the effect of host country political governance on incoming foreign direct investment fdi differs depending on whether fdi originates from a democratic or an autocratic country we also hypothesize that the effect of civil liberties depends on the motivations of investing multinational enterprises mnes and that human capital moderates this relationship we test our hypotheses on a sample of 35 000 investments in emerging and developing countries between 2003 and 2013

speculation in international crises report from the gulf recent years have seen recurring international financial crises as well as a tremendous rise in trading and speculation how are the two related are speculators and trading responsible for market volatility this paper presents a study of the gulf crisis of 1990 1991 examining the behavior of the international oil market during a period of unprecedented volatility the analysis suggests that a combination of political events and market fundamentals rather than trading was behind this volatility

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

endogenizing market institutions an experimental approach abstract we study experimental two sided markets in which the information structure is endogenous when submitting an offer a trader decides which other traders will be informed about the offer this setup allows both a decentralized bargaining market chamberlin j polit econ 56 1948 95 and a double auction market smith j polit econ 70 1962 111 as special cases the results show that offers are typically directed to all traders of the other side of the market but to none of the traders of the same side of the market even though traders receive much less information the resulting market institution leads to the same outcomes in terms of prices and efficiency as a double auction market in two additional treatments we examine the robustness of these results first it is found that the market institution adapts predictably but not necessarily efficiently to the imposition of transaction costs second we find that the preference of sellers to conceal offers from competitors is strict at the same time sellers benefit collectively when they reveal offers to each other

on the trade off between the future benefits and riskiness of r d a bondholders perspective abstract existing studies on the value relevance of r d tend to overstate the r d benefits and shed little light on the trade off between the r d benefits mean effect and their riskiness variance effect this study shows that the variance effect of r d is on average more significant than their mean effect in bond valuation hence for creditors the r d risk dominates their benefits furthermore this study documents that r d measures alone explain approximately 80 of cross sectional variations in bond ratings and risk premium these findings contribute to the debate over r d accounting and the bond pricing literature

responsible leadership for multinational enterprises in bottom of pyramid countries the knowledge of local managers the gulf between multinational enterprises focus on high income countries and the reality of 80 of the world living in developing bottom of pyramid hahn j bus ethics 84 313 324 2009 economies could magnify the anti globalisation movement and political backlashes in the twenty first century the global financial crisis of 2008 and 2009 has increased such social tensions throughout the world and creates greater challenges for responsible leadership in this conceptual article the authors analyse the value and identity of local managers and the liability of foreignness caused by over reliance on expatriate managers and under reliance on local managers in bottom of pyramid countries hahn 2009 it is argued that multinational enterprises need to assess local managers knowledge and contributions as having not only operational and market value but also institutional value such as access to local knowledge and local social capital such a holistic approach will ensure fairer equal treatment of all managers in the multinational enterprise responsible leadership in the twenty first century requires a greater appreciation of local managers institutional value and the overcoming of any psychological distance towards local managers of bottom of pyramid countries

taxing the multinational enterprise on the forced redesign of global value chains and other inefficiencies the taxation of the multinational enterprise mne has been a continuing concern for policymakers we argue that the changing nature of the mobile mne e g its improved ability to fine slice the value chain and disperse it geographically makes it increasingly important to rethink current tax policies first there should be more focus on the inefficiencies that arise when taxation leads to the inefficient location of mne activities thus mnes may shift activities to low tax jurisdictions that offer lucrative pecuniary and non pecuniary incentives but do not enable their investments to maximize their contribution to global value creation second international tax regimes should ensure that mnes pay for their consumption of local public goods and public finance scholars have long known that the taxation based distortions are minimized when the tax objects are immobile however the bulk of current tax policies are aimed at corporate profits that are both poor proxies for the consumption of local public goods as well as extremely mobile integrating theory from international business public finance and economic geography our analysis demonstrates that moving the incidence of taxation from corporate profits to dividends and consumption would unambiguously improve both wealth creation and efficiency

unraveling the mne wage premium whereas ib has extensively studied mnes generic positive impact on host economies but rarely on employee wages economics research has only shown an overall mne wage premium we unravel this premium considering multiple levels of analysis and accounting for host country contextual contingencies to unveil mnes different positive or negative distributional effects using unique micro level data from over 40 000 employees in 13 countries we examine mnes distributional effects for employees gender experience and immigrant status the influence of host country property rights protection and labor regulation and interplays with region and industry effects mnes distributional effects show marked differences that largely depend on the host country context and that are positive for experienced and foreign born employees in developed countries but negative for females working in developing countries whereas in developed countries the gender wage gap is smaller in mnes than in domestic firms as hypothesized we find evidence of a larger wage gap in developing countries the analysis also reveals that the higher host countries level of property rights protection the lower the mne wage premium our study points at the need to reassess statements about the generic positive impact of mnes in host countries particularly in developing countries and discusses further research implications

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

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

dynamic patent races with risky choices this paper investigates equilibrium rd firms compete more vigorously in the later stages of innovation than in the earlier stages and a follower is more likely to choose a riskier innovation path than one requiring on average equivalent effort it provides an explanation of how the expected benefits the cost of r d and interactions between competing firms combine to determine dynamic r d strategies over time

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

double auction dynamics structural effects of non binding price controls in competitive equilibrium non binding price controls that is price floors below and ceilings above the equilibrium should not affect market outcomes but in laboratory experiments they do we build a simple dynamic model of double auction markets with zero intelligence zi computer traders that accounts for many though not all of the discrepancies between the data and the walrasian tatonnement predictions the success of the model in organizing the data and in isolating various consequences of price controls shows that the simple zi model is a powerful tool to gain insights into the dynamics of market institutions

who gets what the mne the national state and the distributional effects of globalization globalization is the outcome of the interface between national states and mnes it is a negotiated solution rather than perfect market equilibrium even in a global liberalized world national states are trying to generate as much welfare for their residents as they can while mnes try to maximize their value this creates a bargaining situation a stylized game theory model is presented and discussed in order to gain insights into the income distributional effects of the globalization process two important features of the model are a that there is a need for a carefully spelt out strategy and b that optimal solutions depend on an ability to identify the elements of the bargaining where the opportunity cost is low a case study of the negotiation between the state of israel and intel is presented as an illustration for this general model

market power in emissions trading markets ruled by a multiple unit double auction further experimental evidence we discuss selected methodological problems of previous double auction da experiments and test the hypothesis that a multiple unit double auction muda is able to prevent market power in an emissions trading market additionally we analyze how the information subjects receive about the market structure and different levels of subjects experience influence the behavior based on a larger number of independent observations than analyzed in previous studies the experiment generates two main results first emissions trading markets ruled by a muda realize a high degree of efficiency even under market power conditions however a muda is in general not able to restrict market power we observe persistent price discrimination in two market power environments i e the distribution of profits is strongly shifted in favor of the strong market side without greatly harming efficiency this result is independent of the information to subjects about the market structure second when subjects are experienced the efficiency is higher and the ability of the strong market side to exercise market power declines strongly however the variability of behavior is large and the strong market side is still able to realize supracompetitive profits in some groups

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

innovation in international business research a call for multiple paradigms scholars disagree on ib s domain and future prescription yet agree that research will engage topics dealing with dynamic change and hard to explain phenomena this paper builds on these views endorsing a multiparadigmatic perspective that complements ib s scientific and humanist paradigms with that of chaos theory the latter we argue is instrumental in studying the non normal patterns of nonlinear far from equilibrium systems we illustrate our ideas in the context of ngos

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 power of multinationals and host governments one of the outcomes of negotiation between multinationals and host governments in developing countries the extent of foreign ownership of subsidiaries is influenced by the bargaining power of the two parties foreign ownership measured in various ways appears to be affected by the level of technology of the multinational the degree to which a multinational attempts to differentiate its products the extent to which a subsidiary s output is exported to other parts of the multinational the diversity of products offered by the multinational and the extent of competition by other multinationals the relationship between some of these variables and ownership is not a simple one one variable that others have mentioned as probably affecting bargaining power size of the investment in question appears not to play a significant role in government policies toward ownership but many large projects tend to be located in countries that have lenient ownership policies

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

the informational efficiency of experimental asset markets a fundamental difficulty in devising any test of general efficient market hypotheses is the specification of the relevant public and private information sets of traders without a consensus as to reasonable empirical specifications tests of the hypotheses remain minimal or controversial in this study we examine the efficiency of experimental asset markets in which one may unambiguously identify the public and private information sets of traders we focus on how market efficiency is affected by the presence of futures markets in settings that incorporate different types of uncertainty and inside information our experimental results support four conclusions 1 market outcomes tend to evolve toward strong form informationally efficient equilibria whether or not futures markets and or event uncertainty are present 2 the presence of futures markets clearly stabilizes spot prices 3 the presence of futures markets tends to speed the evolution of asset markets to more efficient equilibria where there

dropout behavior in r d races with learning we examine a game theoretic model of a two firm r d race in which expenditures on r d and the concomitant increase in experience learning enable thefirms to increase their probability of discovering an invention the learning process is stochastic it generates a unique subgame perfect equilibrium for identicalfirms with the characteristic that the leader never drops out but the follower drops out if the leader gains a significant lead the leader can find it optimal to drop out if the firms value the invention differently or have different r d efficiencies thus our analysis generates results between vigorous competition and natural monopoly central to schumpeter s 1934 vision of entrepreneurship are the extraordinary profits associated with innovation the lure of these profits fuels the fires of creative destruction as innovators replace declining firms this article analyzes the competition for the profits obtained by bringing an innovation to fruition and receiving the associated patent we restrict attention to the subclass of innovations known as inventions innovations that are the product of a firm s research and development in particular we are concerned with the conditions that cause a firm after having invested in r d to drop out of the competitive race situations in which the leading firm drops out are of even greater interest competition in r d is often modelled as a race in which the winner receives a patent and reaps most or all of the benefits of the invention as exemplified by kamien and schwartz 1972 the early theoretical literature tended to be based on decision theoretic models the firm seeks an optimal rate of expenditure on r d determined in part by the expected value of the invention the extent of the first mover advantage the economies or diseconomies of scale in r d and the perceived intensity of rivalry it is not anticipated that the firm s decisions will affect the r d efforts of the perhaps unknown rivals kamien and schwartz 1982 p 124 show that the firm does no research if rivalry is sufficiently intense because their model is static however it is never the case that a firm enters the race and then drops out

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

a dynamic game of r and d patent protection and competitive behavior a theory of dynamic optimal resource allocation to r and d in an n firm industry is developed using differential games this technique represents a synthesis of the analytic methods previously applied to the problem static game theory and optimal control the use of particular functional forms allows the computation and detailed discussion of the nash equilibrium in investment rules this paper addresses the problem of resource allocation to research and development among the important issues that a firm engaging in r and d must evaluate are uncertainty regarding the feasibility and profitability of a particular innovation the possibility of a protracted development period the possibility that a rival firm may innovate first capturing either a patent or a significant share of the new market the possibility that a rival firm may imitate the innovation and appropriate some of the profits in the new market in what follows we will develop a theory of optimal resource allocation to research and development which incorporates the aspects of r and d enumerated above we will use a dynamic game theoretic analysis determining the nash equilibrium strategies for n identical firms the availability of perfect patent protection is shown to accelerate development of the innovation and the effect of increasing rivalry is addressed the impact of increasing rivalry on nash equilibrium investment in r and d depends upon the degree of appropriability of rewards if patent protection is perfect then increasing the number of nash rivals results in increased r and d effort however when imitation is rewarded the opposite may be true finally some notions of competitive and perfectly competitive equilibrium are examined in the context of the model developed below

the contingent effect of state participation on the dissolution of international joint ventures a resource dependence approach we adopt a resource dependence approach to explain the effect of state participation on the dissolution of international joint ventures ijvs while resource dependence theory rdt has been used to explain the formation of ijvs we propose an extension of the theory to explain their dissolution we do so by highlighting the match between foreign firms resource needs resource hierarchy and the resource provision roles of state controlled vs private local partners resource profiles we further argue that the effect of state participation on the dissolution of ijvs is moderated by foreign firms host country experience and ijv age we test our hypotheses by using data on 623 ijvs in china our results show that state participation reduces the risk of ijv dissolution and that the strength of this effect differs depending on the type of state controlled actor that is involved in an ijv we also find that host country experience and ijv age moderate the effect of state participation on ijv dissolution these findings enhance our understanding of ijv dissolution and contribute to the development of rdt

does market oriented institutional change in an emerging economy make business group affiliated multinationals perform better an institution based view viewing market oriented institutional change as a two staged process we propose that the effects of market oriented institutional change on two organizational forms business group affiliated and independent firms are different depending on the stage of institutional change specifically we examine how the two distinct periods of market oriented institutional change that is institutional friction and institutional convergence affect business group affiliated firms and independent firms in their abilities to profit from international diversification using data on 140 korean manufacturing multinational firms from 1993 to 2003 we find that emerging economy firms face an international diversification discount a negative relationship between international diversification and firm performance we also find that business group affiliation affects the international diversification discount differently during the two periods of market oriented institutional change particularly when firm performance is measured by the market to book value mbv the moderating effect of business group affiliation on the relationship between international diversification and mbv is negative during the institutional frictions period but becomes positive during the institutional convergence period in the later stage of institutional change our findings warn against viewing market oriented institutional change as a discrete event highlighting the importance of recognizing the qualitatively distinctive nature of different periods of market oriented institutional change in future research

identifying the big question in international business research buckley 2002 argues that the international business ib research agenda may be running out of steam because no big research question has currently been identified buckley also asks whether the field needs a big question and if so challenges ib scholars to discover it buckley and ghauri 2004 elaborate on the third question of globalization discussed in buckley 2002 as a possible candidate for the big question in response this article is written to take up buckley s challenge and also to comment on buckley and ghauri s more recent work i agree that ib needs a big question the pursuit of which can serve to unite and energize scholars make scientific progress and enhance the status and prestige of the field toward that end i argue that what determines the international success and failure of firms has always served as a fundamental research question which has permeated ib research in the past and present and is likely to propel its progress in the future therefore i am of the opinion that the ib research agenda is not likely to run out of steam because focusing on this question will leverage ib s comparative advantage and keep the field engaged in generating exciting and disciplined theories and findings in the 21st century

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

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

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

globalization and ngos transforming business government and society journal of international business studies 2004 35 564 566 doi 10 1057 palgrave jibs 8400114 it is both easy and hard to define something by what it is not ngos by their title are non governmental organizations in other words all organizations that are not governments that is the easy definition the problem is that ngos by this definition include everything but the proverbial kitchen sink that is private firms religious and charitable organizations universities advocacy groups newspapers and other media and so on doh and teegen s book globalization and ngos transforming business government and society is designed to reduce this open endedness by focusing on what ngos are rather than what they are not the book has three cross cutting themes what are ngos how and why they differ from governments and firms and how they operate in the global economy fit within societies and influence other organizations there are 10 chapters in the book which explore the rise of ngos and their impacts on governments and firms several nice case studies are included global climate change world wildlife fund genetically modified organisms trade policy and forestry the conclusions chapter sums up and provides a research agenda jone pearce in her forward to the book defines ngos as the name given to those nonprofit associations focused on social change via political influence or to those providing social and humanitarian services in highly politicized cross national contexts p xi doh and teegen in their conclusion chapter define ngos as organizations of individuals and donors committed to the promotion of a particular set of issue s through advocacy work and or through operational activities whereby services are delivered pp 206 207 ngos are seen as one of three key actors in the global economy together with governments and firms ngos not only have their own dyadic relationships with the other two actors but also mediate and moderate the business government dyad doh and teegen argue that ngos are agents for change in the global economy therefore scholars and practitioners need to focus more on understanding which ngos matter how firms and governments should best engage ngos and how ngos can play a more definitive role on supranational issues that the public and private sectors have failed to address journal of international business studies 2004 35 564 566 2004 palgrave macmillan ltd all rights reserved 0047 2506 30 00

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

the impact of corporate social performance on a firm s multinationality using panel data of 4 244 company years we examine whether and how corporate social performance csp affects a firm s capacity to achieve profitable sales in foreign markets based on our extension of instrumental stakeholder theory into the international arena we hypothesized a u shaped relationship between csp and multinationality results supported our contention that multinational enterprises mnes need to be substantially committed to social performance objectives if they are to recoup the cost of their csp investments and improve their capacity to compete in foreign markets mnes engaged in intermediate levels of csp achieve lower levels of multinationality than firms operating at either anchor of the social performance continuum in addition this study demonstrates that csp moderates a well established relationship in international business literature the relationship between r d investment and a firm s multinationality implications for research and practice are discussed

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

price dynamics in general equilibrium experiments general equilibrium ge theory faces several related challenges classical theories of out of equilibrium adjustment are intuitive but implausibly centralized further standard restrictions on individual preferences place little structure on aggregate excess demand functions amongst other issues this fact implies that economies can be unstable under classical dynamics and thus instability appears to be an unavoidable feature of ge theory this paper recounts laboratory studies of ge environments which reveal that classical theories of dynamics do in fact organize market activity surprisingly well these experiments suggest that the walrasian auctioneer for example appears to be a constructive abstraction and that instability should be accommodated within theory rather than circumscribed laboratory applications of ge theory focused on issues beyond stability and dynamics are also briefly surveyed

a stochastic competitive r d race where winner takes all the paper considers a race among multiple firms that compete over the development of a product the first firm to complete the development gains a reward whereas the other firms gain nothing each firm decides how much to invest in developing the product and the time it completes the development is a random variable that depends on the investment level the paper provides a method for explicitly computing a unique nash equilibrium parametrically in the interest rate for a given interest rate the nash equilibrium is determined in time that is linear in the number of firms the structure of the solution yields insights about the behavior of the participants furthermore an explicit expression for a unique globally optimal solution is obtained and compared to the unique nash equilibrium

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

the competitive market paradox abstract the competitive market model is paradoxical in perfect competition agents cannot influence price they only select an output quantity such passive behavior does not conform to the intuitive notion of competition this paper describes an experiment which demonstrates that near or even at a competitive equilibrium price competition is undiminished a substantial difference between the performance of sellers and buyers frequently results from this vigorous competition even with low price variability and approximate efficiency in double auction experiment sessions conducted with both automated and human agents exogenous variation of the pace of asks and bids of automated agents demonstrates that the performance difference between sellers and buyers results primarily from a difference between the pace of asks and bids if the buyers pace is slower than sellers pace buyers make price concessions less frequently than sellers so that prices move below the equilibrium price then more buyers become active and fewer sellers remain active prices stabilize when changes to the numbers of active buyers and sellers offset the superior bargaining capability of one side or the other in competitive equilibrium to a first approximation agents are price takers but that does not preclude vigorous competition competitive behavior moves to the dimension of bargaining pace

the impact of iso 9000 diffusion on trade and fdi a new institutional analysis the effects of iso 9000 diffusion on trade and foreign direct investment fdi have gone understudied we employ panel data reported by oecd nations over the 1995 2002 period to estimate the impact of iso adoptions on country pair economic relations we find iso diffusion to have no effect in developed nations but to positively pull fdi i e enhancing inward fdi and positively push trade i e enhancing exports in developing nations

redistribution and market efficiency an experimental study abstract we study the interaction between competitive markets and income redistribution that reallocates unequal pre tax market incomes away from the rich to the poor majority in one setup participants earn their income by trading in a double auction da with exogenous zero or full redistribution in another setup after trading they vote on redistributive tax policies in a majoritarian election with two competing candidates this results in virtually full redistribution even when participants have the opportunity to influence taxes by transferring money to the candidates we find that the high redistribution reduces trading efficiency but not as much as predicted if market participants trade randomly this is because rather than capitulating to the much lower trading incentives many participants respond to redistribution by asking and bidding more conservatively in the da and in this way help to prevent further efficiency losses

varieties of agents in agent based computational economics a historical and an interdisciplinary perspective in this paper we trace four origins of agent based computational economics ace namely the markets origin the cellular automata origin the tournaments origin and the experiments origin along with this trace we examine how these origins have motivated different concepts and designs of agents in ace which starts from the early work on simple programmed agents randomly behaving agents zero intelligence agents human written programmed agents autonomous agents and empirically calibrated agents and extends to the newly developing cognitive agents psychological agents and culturally sensitive agents the review also shows that the intellectual ideas underlying these varieties of agents cross several disciplines which may be considered as a part of a general attempt to study humans and their behavior with an integrated interdisciplinary foundation

developing countries and mnes extending and enriching the research agenda foreign direct investment fdi through multinational enterprises mnes has emerged in the last decade as the principal source of foreign capital for developing countries meyer this issue underlines the need for international business ib scholars to understand the impact of these investments on host developing countries he offers a useful assessment of the literature and proposes a rich set of questions for further research however his research agenda can be extended and enriched in two ways first ib scholars must study as they always have causation in the opposite direction namely the impact of developing country context on mne behavior and the co evolution of these two variables over time in doing so they must incorporate into their models contemporary issues such as the continued inadequacy of rules for fdi in infrastructure sectors or the clever means by which mnes are rewriting the global rules under which they operate in developing countries e g on intellectual property rights second ib scholars must pay more attention to topics that are not mainstream within the field but are of great importance to developing countries examples include the behavior and performance of a new generation of home grown mnes the role of diaspora in homeland fdi in countries like china and india and the implications of global outsourcing of services

towards a renaissance in international business research big questions grand challenges and the future of ib scholarship in this article we review critiques of international business ib research with a focus on whether ib scholarship tackles big questions we identify three major areas where ib scholars have addressed important global phenomena but find that they have had little influence outside of ib and only limited effects on business or government policy we propose a redirection of ib research towards grand challenges in global business and the use of interdisciplinary research methods multilevel approaches and phenomena driven perspectives to address those questions we argue that ib can play a more constructive and vital role by tackling expansive topics at the business societal interface

introduction to the symposium multinationals the janus face of globalization panning the globe its af liates andstrategic partnerships linking coun tries in complex webs of alliances themultinational enterprise mne is theembodiment of globalization and itsprincipal agent nation states have con tributed towards making the mne thekey agent of globalization through pro moting technological innovation reduc ing tariff and non tariff barriers and lib eralizing their domestic nancial sys tems multinationals have been theprime movers behind globalization tak ing advantage of the increased opennessof domestic economies to integrate theiractivities across national markets and so cieties given their mobility and visibility itis not surprising that mnes have becomea lightning rod for groups concernedabout the various costs of globalization social cultural political and perhapsmost importantly the economic costs although international business ib scholars and policymakers emphasizethe bene ts of globalization and cooper ative relations with mnes the publicand non governmental organizationshave ignored these views and focused onthe dark side of mne state relations with the growing backlash against glob alization and mnes more research onthe janus face of globalization is neededif the pro mne pro globalization viewsof most ib scholars are to prevail in pub lic policy debates this research symposium served as aninvitation to international businessscholars to further explore the janus faceof globalization through organizing thissymposium we have come to appreciatethat when scholars look at problemsidenti ed with globalization s dark side they also often contribute to our under standing of the bright side the potentialfor globalization to bring with it wide spread bene ts for all we submit that asscholars we can learn more when we tryto ferret out the causal relationships be tween globalization the mne the state

enhancing the obsolescing bargain theory a longitudinal study of foreign ownership of u s and european multinationals this research attempts to enhance the obsolescing bargain theory for manufacturing companies by statistically testing the effects of nine explanatory variables on the static and dynamic manifestations of bargaining success with longitudinal firm level data in order to highlight those effects it develops a conceptual framework that provides a broader context in which the primary variables operate it demonstrates that the obsolescing bargain took effect in india over a fifteen year period following restrictive legislation unlike previous research this study measures the effect of benefits received by multinationals from the host government in exchange for equity dilution american companies are found to retain a smaller share of their foreign ownership over time than british and other european multinationals some explanatory variables that have previously been found to influence level of foreign ownership static bargaining success are found to be less important or have a different effect in explaining proportion of foreign ownership retained dynamic bargaining success

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

a simple testable model of double auction markets abstract we propose a model of price formation in double auction markets which employs the strong simplifying assumption that agents neglect strategic feedback effects and regard themselves as playing a game against nature agents otherwise are strict expected utility maximizers employing bayesian updating procedures we prove the optimality of simple aggressive reservation price strategies in our general model and propose a parametric form that yields very detailed and computable predictions of market behavior

globalization and location choice an analysis of us multinational firms in 1980 and 2000 in this paper we examine foreign location choices of the top 100 us multinational corporations mncs in 1980 and 2000 we first ask whether there has been a change in mnc foreign location choice in this two decade period second we explore the underlying reasons of location change by focusing on country level factors accounting for firm industry and regional level explanations our findings suggest first that the extent of mncs activities around the globe is more extensive than assumed by regionalists arguments and well beyond ohmae s triad but still less widespread than claimed by the globalists the two main traditions within the globalization regionalization debate second we uncover an interesting de location pattern in this period third we develop an integrative framework where both economic and institutional cultural arguments are shown to influence mncs foreign location choice in different ways we conclude with a discussion of our findings and provide suggestions for future research

avoidable cost ride a double auction roller coaster the double auction trading institution has been highly efficient across diverse marginal cost market structures whether human subjects or zero intelligence robots populated those markets accordingly many researchers suspect that double auction performance transcends market structure and agent strategy but the authors show that large avoidable costs undermine the efficiency and stability of human subject double auctions and these low human efficiencies are simultaneously well above zero intelligence efficiencies their results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies copyright 1996 by american economic association

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

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

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

markets as information gathering tools the academic literature wall street commentary and even daily news reporting reflect a belief that markets can anticipate events the current movements in the stock market are interpreted as reflecting the likelihood that the federal reserve system will change interest rates futures markets are interpreted as reflecting the best estimates of things to come movements in individual stock prices are thought to anticipate earnings reports or the probability of a merger or buyout if we want to know about future weather in the south we should study the orange juice futures the academic journals are filled with the concept of rational expectations in which current prices are supposed to reflect the sum of all knowledge in the system prices according to this theory are a statistic that indicates the aggregation of information about underlying states of the economy those who are outsiders to the information in the system become insiders by simply observing the economic activity

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

characterizing effective trading strategies insights from a computerized double auction tournament abstract this paper presents a comparative analysis of 30 computer trading programs that participated in a double auction tournament held at the santa fe institute in 1990 and 1991 our objective is to characterize the form of effective trading strategies in double auction markets we find that a simple rule of thumb is a highly effective and robust performer over a wide range of trading environments significantly outperforming more complex algorithms that use statistically based predictions of future transaction prices explicit optimizing principles and sophisticated learning algorithms