Essays in Experimental Economics &amp; Industrial Organisation
Creators: name: Ismayilli, Mehman
Publisher: name: University of Leicester
Year: 2023
Subjects: Uncategorized

description: Chapter 2, titled “First-order stochastic dominance, framing effects &amp; risk preferences”, experimentally investigates whether decision-makers’ violations of the first-order stochastic dominance (FSD) criterion of rational choice, as documented in previous studies, are correlated with their risk preferences. As argued in the literature, FSD violations require framing effects to affect an individual’s decisions: the frame of the lotteries in an individual’s choice set must prevent the individual from the “inferiority” of choosing stochastically dominated lotteries. This chapter moves a step ahead by investigating whether (consistent or erratic) risk-averse or risk-seeking attitudes towards uncertainty make individuals more or less receptive to the framing effects which can induce FSD violations. Our main finding is that consistent (and, to a minor extent, “erratic”) risk-seeking individuals are statistically significantly more prone to violate the FSD criterion in their choices than individuals exhibiting different risk attitudes (i.e., consistent risk-averse and systematically inconsistent risk taking individuals). We finally control for the role of the framing effects in our results. Consistently with the previous literature, we find that the framing effects play a crucial role. As we re-frame lotteries in such a way to make the FSD superior prospects more easily distinguishable, any participants hardly violates the FSD criterion, irrespective of their risk preferences, gender and exerted cognitive abilities. Chapter 3 and 4 consider a durable monopolist’s optimal timing for a new product with a finite economic life. The production technology can evolve within the product life and offer the product at lower unit production costs in later stages. The focus of both chapters is to contrast the first-best socially optimal timing with which the product will be served to different types of consumers, with the profit-maximising market strategy of the monopolist, the latter being negatively affected by asymmetric information on the consumer types. In Chapter 3, titled “Strategic delay of product introductions in full commitment regime”, we assume that the monopolist can perfectly commit to inter-temporal price offers for the product announced at the outset. More specifically, the monopolist can commit not to make any additional price offer in the future. Given that future production cost savings are sufficiently high, the monopolist may optimally resort to intertemporal price discrimination by “over-delaying” (relative to the first-best solution) the consumption of the low-type consumers. Applications of this result are discussed in relation to the introduction of differentiated (in cost) versions of high-tech products (e.g., generations of mobile phones with finite expected economic life). On the contrary, monopolistic overdelay of the consumption of high-type consumers can never occur under full commitment. In Chapter 4, titled “Strategic delay of product introductions in non-commitment regime”, we assume that the monopolist cannot commit not to make future price offers after having made an initial announcement of intertemporal prices. The inability to commit generates a standard Coase durable monopolist problem. We show that, in our setting, when the future production cost saving is sufficiently (but not too much) high, the monopoly equilibrium can exhibit two distortions: the consumption of the high-type consumers is over-delayed relative to the first best, and the low-types consumers stop participating to the market, whilst the social planner would serve them at the late stage of the product life in the first-best solution.