Donja Darai, Silvia Grätz, Determinants of Successful Cooperation in a Face-to-Face Social Dilemma, In: Working paper series / Socioeconomic Institute, No. No. 1006, 2010. (Working Paper)
What makes you a successful cooperator? Using data from the British television game show 'Golden Balls' we analyze a prisoner's dilemma game and its pre-play. We find that players strategically select their partner for the PD, e.g., they bear in mind whether contestants lied. Players' expectations about the stake size strongly influence the outcome of the PD: The lower the stakes, the more likely players successfully cooperate. Most interestingly, unilateral cooperation is encouraged by mutually promising not to defect and shaking hands on it, but a mere handshake serves as manipulating device and increases successful defection. |
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Armin Schmutzler, Adrian Muller, Andreas Polk, Lobbying and the Power of Multinational Firms, In: Working paper series / Socioeconomic Institute, No. No. 1008, 2010. (Working Paper)
Are national or multinational firms better lobbyists? This paper analyzes the extent of national environmental regulation when policy is determined in a lobbying game between a government and firm. We compare the resulting regulation levels for national and multinational firms. We identify three countervailing forces, the easier-to-shut-down effect, the easier-to-curb-exports effect and the multiple-plant effect. The interplay of these three forces determines whether national or multinational firms produce more, depending on such parameters as the potential environmental damages, transportation costs and the in uence of the firm. We also show that welfare levels are higher with multinational firms than with national firms when there is no lobbying, but that lobbying can reverse the welfare ordering. |
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Donja Darai, D Sacco, Armin Schmutzler, Competition and innovation: an experimental investigation, Experimental Economics, Vol. 13 (4), 2010. (Journal Article)
The paper analyzes the effects of more intense competition on firms’ investments in process innovations. More intense competition corresponds to an increase in the number of firms or a switch from Cournot to Bertrand competition. We carry out experiments for two-stage games, where R&D investment choices are followed by product market competition. An increase in the number of firms from two to four reduces investments, whereas a switch from Cournot to Bertrand increases investments, even though theory predicts a negative effect in the four-player case. The results arise both in treatments in which both stages are implemented and in treatments in which only one stage is implemented. However, the positive effect of moving from Cournot to Bertrand competition is more pronounced in the former case. |
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Silvia Grätz, Donja Darai, Golden Balls: A Prisoner's Dilemma Experiment, In: 2010 International Economic Science Association World Meeting. 2010. (Conference Presentation)
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Armin Schmutzler, The relation between competition and innovation - Why is it such a mess?, In: Working paper series / Socioeconomic Institute, No. No. 716, 2010. (Working Paper)
Using a general two-stage framework, this paper gives sufficient conditions for increasing competition to have negative or positive effects on R&D-investment, respectively. Both possibilities arise in plausible situations, even if one uses relatively narrow definitions of increasing competition. The paper also shows that competition is more likely to increase the investments of leaders than those of laggards. When R&D-spillovers are strong, competition is less likely to increase investments. The paper also identifies conditions under which low initial levels of competition make a positive effects of competition on investment more likely. Extending the basic framework, the paper shows that separation of ownership and control, endogenous entry and cumulative investments make positive effects of competition on investment more likely. Imperfect upstream competition weakens the effects of competition on investment. |
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Armin Schmutzler, Is competition good for innovation? A simple approach to an unresolved question, Foundations and Trends in Microeconomics, Vol. 5 (6), 2010. (Journal Article)
The relation between the intensity of competition and R&D investmenthas received a lot of attention, both in the theoretical and in the empirical literature. Nevertheless, no consensus on the sign of the effect of competition on innovation has emerged. This survey of the literature identifies sources of confusion in the theoretical debate. My discussion is mainly based on a unified model that simplifies the comparison of different results. This model is also applied to show which factors work in favor of a positive relation between competition and innovation. |
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Armin Schmutzler, Ausschreibungswettbewerb - Heilsbringer, sinnlose Pflichtübung oder neoliberales Teufelszeug?, In: Wirtschaftspolitik nach der Krise: Tagungsband zur Gerzensee-Konferenz vom 19. und 20. November 2009, Avenir Suisse, Bern, p. 105 - 117, 2010. (Book Chapter)
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Daniel Halbheer, Ernst Fehr, Lorenz Götte, Armin Schmutzler, Self-reinforcing market dominance, Games and Economic Behavior, Vol. 67 (2), 2009. (Journal Article)
Are initial competitive advantages self-reinforcing, so that markets exhibit an endogenous tendency to be dominated by only a few firms? Although this question is of great economic importance, no systematic empirical study has yet addressed it. Therefore, we examine experimentally whether firms with an initial cost advantage are more likely to invest in marginal cost reductions than firms with higher initial costs. We find that the initial competitive advantages are indeed self-reinforcing, but subjects in the role of firms overinvest relative to the Nash equilibrium. However, the pattern of overinvestment even strengthens the tendency towards self-reinforcing cost advantages relative to the theoretical prediction. Further, as predicted by the Nash equilibrium, mean-preserving spreads of the initial cost distribution have no effects on aggregate investments. Finally, investment spillovers reduce investment, and investment is higher than the joint-profit maximizing benchmark for the case without spillovers and lower for the case with spillovers. |
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Dennis L Gärtner, Armin Schmutzler, Merger negotiations and ex-post regret, Journal of Economic Theory, Vol. 144 (4), 2009. (Journal Article)
We consider a setting in which two potential merger partners each possess private information pertaining
both to the profitability of the merged entity and to stand-alone profits, and we investigate the extent to
which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations.
To this end, we consider ex-post incentive compatible mechanisms, which use both players’ reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports. |
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Lorenz Götte, Armin Schmutzler, Merger policy: what can we learn from experiments?, In: Experiments and Competition Policy, Cambridge University Press, Cambridge, p. 185 - 216, 2009. (Book Chapter)
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Rafael Lalive, Armin Schmutzler, Mehr Effizienz durch Wettbewerb im SPNV: Illusion oder Wirklichkeit?, In: Die Zukunft des öffentlichen Personennahverkehrs, Lexxion, Berlin, p. 165 - 178, 2009. (Book Chapter)
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Armin Schmutzler, A unified approach to comparative statics puzzles in experiments, In: Working paper series / Socioeconomic Institute, No. No. 601, 2008. (Working Paper)
Many experimental studies implement two versions of one game for which agents’ behavior is fundamentally different even though the Nash prediction is the same. This paper provides a novel explanation of such findings. Starting from the observation that many of the games under consideration satisfy the strategic-complementarity property, I obtain predictions for the direction of adjustment in response to parameter changes which do not require calculation of the quilibrium. I show that these predictions explain the experimental evidence very well. Further, I provide a behavioral justification of the approach, and I explore the relation to alternative explanations based on equilibrium selection theories and the quantal response equilibrium. |
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Dario Sacco, Armin Schmutzler, Competition and Innovation: An Experimental Investigation, In: Working paper series / Socioeconomic Institute, No. No. 807, 2008. (Working Paper)
The paper analyzes the effects of more intense competition on firms’ incentives to invest in process innovations. We carry out experiments based on two-stage games, where R&D investment choices are followed by product market competition. As predicted by theory, an increase in the number of firms from two to four reduces investments. However, a positive effect is observed for a switch from Cournot to Bertrand, even though theory predicts a negative effect in the four-player case. |
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Dario Sacco, Armin Schmutzler, All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence, In: Working paper series / Socioeconomic Institute, No. No. 806, 2008. (Working Paper)
The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own e?ort and negatively on the e?ort of competitors. Such auctions arise naturally in the context of investment games, lobbying games, and promotion tournaments. We also provide an experimental analysis of a special case which captures the strategic situation of a two-stage game with investment preceding homogenous Bertrand competition. We obtain overinvestment both relative to the mixed-strategy equilibrium and the social optimum. |
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Zava Aydemir, Armin Schmutzler, Small scale entry versus acquisitions of small firms: is concentration self-reinforcing?, Journal of Economic Behavior & Organization, Vol. 65 (1), 2008. (Journal Article)
We consider a reduced form model with acquisitions and entry. There are two investors and several small non-investing firms. One investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm. |
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Rafael Lalive, Armin Schmutzler, Exploring the effects of competition for railway markets, International Journal of Industrial Organization, Vol. 26 (2), 2008. (Journal Article)
This paper studies the effects of introducing competition for local passenger railway markets in the German state of Baden-Württemberg. We compare the evolution of the frequency of service on lines that were exposed to competition for the market with lines procured by direct negotiations with the incumbent. Our results suggest that the competitively procured lines enjoyed a stronger growth of the frequency of service than those that were not procured competitively, even after controlling for various line characteristics that might have had an independent influence on the frequency of service. Our results further suggest that the effects of competition may depend strongly on the operator. |
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Dario Sacco, Essays in industrial organization and experimental economics, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2008. (Dissertation)
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Rafael Lalive, Armin Schmutzler, Entry in liberalized railway markets: the German experience, Review of Network Economics, Vol. 7 (1), 2008. (Journal Article)
In Germany, competitive franchising is increasingly being used to procure passenger railway services that were previously provided by a state monopolist. This paper analyzes 77 tenders that differ with respect to network size, service frequency, contract duration and the proximity to other lines that are already run by competitors of DB Regio, a subsidiary of the successor of the former state monopolist. Our analysis shows that competitors are more likely to win small networks and more recent auctions. Other controls such as contract duration and the adjacency to other lines run by entrants are insignificant. |
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Stefan Buehler, Armin Schmutzler, Intimidating competitors - Endogenous vertical integration and downstream investment in successive oligopoly, International Journal of Industrial Organization, Vol. 26 (1), 2008. (Journal Article)
This paper examines the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. Analyzing a linear Cournot model, we establish the following key results: (i) Vertical integration increases own investment and decreases competitor investment (intimidation effect). (ii) Asymmetric integration is a non-degenerate equilibrium outcome. (iii) Compared to a benchmark model without investment, complete vertical separation is a less likely outcome. We argue that these findings generalize beyond the linear Cournot model under reasonable assumptions. |
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Dennis Gaertner, Armin Schmutzler, Merger Negotiations and Ex-Post Regret, In: Working paper series / Socioeconomic Institute, No. No. 607, 2007. (Working Paper)
We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post mechanisms, which use both players’ reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports. |
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