Endogenous cartel formation: Experimental evidence

In a Bertrand-oligopoly experiment, firms choose whether or not to engage in cartel-like communication and, if so, they may get fined by a cartel authority. We find that the four-firm industries form cartels more often than the duopolies because they gain less from a hysteresis effect after cartel disruption.     

Endogenous Timing with Incomplete Information and with Observable Delay

This paper analyzes endogenous timing in a duopoly model with incomplete information. Firms announce the period in which they will move before choosing an action and are then committed to their choices. Endogenous Stackelberg equilibria, with either the informed or the uninformed firm as the Stackelberg leader, may emerge. For most parameters, the Cournot equilibrium in the first production period results endogenously. Journal of Economic Literature Classification Numbers: C72; C73; D82; L10.     

Vertical Integration and Market Foreclosure with Convex Downstream Costs

Received December 14, 2000; revised version received July 16, 2001     

Vertical integration, raising rivals’ costs and upstream collusion

This paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear. As a first step, the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated. It turns out this is the joint-profit maximum of the colluding firms. The discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry. While the previous literature has found it difficult to reconcile raising-rivals’-costs strategies following a vertical merger with equilibrium behavior in the static game, they are subgame perfect in the repeated game studied here.     

Simulating Ruin Probabilities for a Class of Semimartingales by Importance Sampling Methods

We consider the problem of finding the probability of ruin when the risk process is assumed to be a special semimartingale with absolutely continuous characteristics. We show how the generalized Girsanov theorem can be used in connection with Monte Carlo simulation to obtain estimates of the ruin probabilities. It is shown by both analytical and numerical examples that these methods can be significantly better than ordinary simulations provided the new measure is chosen with some care.     

A comparative statics analysis of punishment in public-good experiments

This paper provides a comparative-statics analysis of punishment in public-good experiments. We vary the effectiveness of punishment, that is, the factor by which punishment reduces the punished player’s income. The data show that contributions increase monotonically in punishment effectiveness. High effectiveness leads to near complete cooperation and welfare improvements. Below a certain threshold, however, punishment cannot prevent the decay of cooperation. In these cases, punishment opportunities reduce welfare. The results suggest that the experimenter’s choice of the punishment effectiveness is of great importance for the experimental outcome.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.      

Endogenous Stackelberg equilibria with incomplete information

In this paper, the endogenous order of quantity decision is studied in a duopoly model with incomplete information. One firm knows the state of the demand curve while the other firm remains uninformed. Firms have to commit to a quantity in one out of two periods. While, a priori, simultaneous-move Cournot equilibria are possible, only Stackelberg equilibria, with either the informed or the uninformed firm moving first, emerge endogenously.