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A market experiment.
Paolo Crosetto and Alexia
Gaudeul
INRA, Universit de Grenoble, France and
Friedrich-Schiller-Universitt Jena, Germany
June 26, 2014
Industrial Organization: Theory, Empirics and
Experiments
Alberobello, Italy
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Introduction (1)
Main idea:
We test the belief in the self-regulating nature of competitive
markets.
Will rms choose to compete head-on through
standardization or employ obfuscatory tactics by avoiding the
use of common standards?
CS
i
= 1 if rm i adopted a common standard (CS), 0
else. X > 0 measures the penalty on non-CS offers.
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A model of competition with shrouding
(5)
Example
0% 10% 20%
Limited information X
10%
L0
L11 L12
20% L21 L22
Full information X
10%
F0
F11 F12
20% F21 F22
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Best response dynamics (1)
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Simulations (1)
Table: Simulated results, effective price (mean, sd) and % of
periods with a CS.
0% 10% 20%
X
10% 1.63 (0.34)
NA
1.62 (0.34)
41%
1.56 (0.35)
42%
20%
1.59 (0.34)
40%
1.53 (0.36)
45%
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The experiment (1)
0% 10% 20%
Limited
information
X
10% 1.76 (0.62)
40%
1.71 (0.57)
48%
1.62 (0.66)
54%
20%
1.67 (0.55)
57%
1.66 (0.60)
68%
Full
information
X
10% 1.86 (0.85)
33%
1.95 (0.83)
42%
2.05 (0.90)
44%
20%
1.77 (0.83)
40%
2.14 (1.06)
37%
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The prevalence of collusion (1)
Denition
We say a rm is colluding if it could have increased its prot
and lowered the prot of at least another rm by changing
its decisions given the decisions of its competitors in a given
period.
0% 10% 20%
Limited
information
X
10% 2.19
42%
2.02
56%
2.01
53%
20%
1.98
52%
1.84
69%
Full
information
X
10% 2.46
43%
2.29
60%
2.33
70%
20%
2.28
47%
2.51
65%
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The prevalence of collusion (3)
0% 10% 20%
Limited
information
X
10%
1.83; 1.66; 1.66
1.87; 1.58; 1.38 1.81; 1.53; 1.08
20% 1.80; 1.58; 1.56 1.87; 1.59; 1.48
Full
information
X
10%
1.88; 1.82; 1.79
2.18; 1.66; 1.42 2.37; 1.71; 1.40
20% 1.88; 1.64; 1.53 2.47; 1.67; 1.37
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Competition and adoption of a common
standard (2)
0% 10% 20%
Limited
information
X
10% 1.71
1.76
1.64
1.72
1.54
1.64
20%
1.57
1.68
1.54
1.69
Full
information
X
10% 1.82
1.86
1.88
1.95
1.98
2.06
20%
1.70
1.78
2.08
2.15
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Welfare analysis (2)
The more savvy consumers there are and the stronger are
their preferences, the worse they fare under full
information.
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Analysis of strategies from the feedback of
subjects (1)
This effect plays out when rms can see prices and
standards of other rms.