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Full-Text Articles in Social and Behavioral Sciences
Competitive Blind Spots And The Cyclicality Of Investment: Experimental Evidence, Cortney S. Rodent, Andrew Smyth
Competitive Blind Spots And The Cyclicality Of Investment: Experimental Evidence, Cortney S. Rodent, Andrew Smyth
Economics Faculty Research and Publications
We report laboratory experiments investigating the cyclicality of profit‐enhancing investment in a competitive environment. In our setting, optimal investment is counter‐cyclical when investment costs fall following market downturns. However, we do not observe counter‐cyclical investment. Instead, we see much less strategic behavior than our rational investment model anticipates. Our participants exhibit what Porter (1980) terms a competitive blind spot, and heuristic investment models where individuals invest a fixed percentage of their liquidity, or a fixed percentage of anticipated market demand, better fit our data than does optimal investment. We also report a control treatment without cost changes and a treatment …
An Experiment On Innovation And Collusion, Andrew Smyth
An Experiment On Innovation And Collusion, Andrew Smyth
Economics Faculty Research and Publications
This paper examines the relationship between product innovation and the success of price collusion using novel laboratory experiments. Average market prices in low innovation (LO) experiments are significantly higher than those in high innovation, but otherwise identical experiments. This price difference is attributed to LO experimental subjects' greater common market experience. The data illustrate how collusion can be perceived as the "only way to make it" in LO markets where product innovation is not a viable strategy for increasing profits. They suggest that product homogeneity can be a proximate cause, and product innovation an ultimate cause, of collusion.
Testing The Boundaries Of The Double Auction: The Effects Of Complete Information And Market Power, Erik O. Kimbrough, Andrew Smyth
Testing The Boundaries Of The Double Auction: The Effects Of Complete Information And Market Power, Erik O. Kimbrough, Andrew Smyth
Economics Faculty Research and Publications
We report boundary experiments testing the robustness of price convergence in double auction markets for non-durable goods in which there is extreme earnings inequality at the competitive equilibrium (CE). Following up on a conjecture by Smith (1976a), we test whether the well-known equilibrating power of the double auction institution is robust to the presence of complete information about traders’ values and costs and the presence of symmetric market power. We find that complete information is insufficient to impede convergence to CE prices; however, introducing market power consistently causes prices to deviate from the CE, whether or not subjects possess complete …
Competition, Cost Innovation, And X-Inefficiency In Experimental Markets, Andrew Smyth
Competition, Cost Innovation, And X-Inefficiency In Experimental Markets, Andrew Smyth
Economics Faculty Research and Publications
This paper examines the relationship between competition, cost innovation, and x-inefficiency in experimental markets. In the lab, oligopolists make closer-to-optimal cost innovation expenditures than do monopolists, which result in lower x-inefficiency in oligopoly than in monopoly. Oligopolies also increase total surplus relative to monopoly, and consumer surplus makes up a larger portion of total surplus in oligopoly than monopoly. The data illustrate how x-inefficiency affects surplus dynamically and suggest price as a mechanism by which competitive pressure increases cost efficiency.