Research
Research
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Publications
Foreclosure and Profit Shifting with Partial Vertical Ownership (with Matthias Hunold)
Journal of Economics and Management Strategy, 2024
We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target. Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target. Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
JEL Codes: G34, L22, L40
Keywords: Foreclosure; Minority shareholdings; Partial ownership; Profit shifting; Vertical integration
A longer version of this paper is available here.
This paper explores one channel in which communication facilitates cooperation – belief precision. A prisoner’s dilemma experiment shows that communication not only promotes optimism about the partner's cooperation but also increases the precision of this belief, thereby reducing strategic uncertainty.
This paper explores one channel in which communication facilitates cooperation – belief precision. A prisoner’s dilemma experiment shows that communication not only promotes optimism about the partner's cooperation but also increases the precision of this belief, thereby reducing strategic uncertainty.
JEL Codes: C92, D83
Keywords: Prisoner’s dilemma; Communication; Beliefs; Strategic uncertainty; Experiment
The replication package is available here.
Loss Aversion in Social Image Concerns (with Gerhard Riener and Hannah Schildberg-Hörisch)
Experimental Economics, 2023
Does loss aversion apply to social image concerns? In a laboratory experiment, we first induce social image in a relevant domain, intelligence, through public ranking. In a second stage, subjects experience a change in rank and are offered scope for lying to improve their final, also publicly reported rank. Subjects who care about social image and experience a decline in rank lie more than those experiencing gains. Moreover, we document a discontinuity in lying behavior when moving from rank losses to gains. Our results are in line with loss aversion in social image concerns.
Does loss aversion apply to social image concerns? In a laboratory experiment, we first induce social image in a relevant domain, intelligence, through public ranking. In a second stage, subjects experience a change in rank and are offered scope for lying to improve their final, also publicly reported rank. Subjects who care about social image and experience a decline in rank lie more than those experiencing gains. Moreover, we document a discontinuity in lying behavior when moving from rank losses to gains. Our results are in line with loss aversion in social image concerns.
JEL Codes: C91; D91
Keywords: Loss aversion; Social image concerns; Lying behavior; Laboratory experiment
The replication package is available here.
Working papers
Does communication always promote socially efficient behavior? We challenge this common proposition by showing that communication becomes destructive in polarized contexts. In an online experiment, we investigate what happens when participants who fundamentally disagree communicate. We exogenously vary the degree of polarization and the participants’ ability to communicate. When participants are sufficiently polarized, communication no longer improves trust and significantly reduces trustworthiness. Using natural language processing and supervised machine learning, we document that a substantial fraction of participants focus their communication on being polarized, leading to a destructive effect on both trust and trustworthiness. Our findings challenge the universality of contact theory, highlighting that communication may backfire in settings where parties hold opposing views.
Does communication always promote socially efficient behavior? We challenge this common proposition by showing that communication becomes destructive in polarized contexts. In an online experiment, we investigate what happens when participants who fundamentally disagree communicate. We exogenously vary the degree of polarization and the participants’ ability to communicate. When participants are sufficiently polarized, communication no longer improves trust and significantly reduces trustworthiness. Using natural language processing and supervised machine learning, we document that a substantial fraction of participants focus their communication on being polarized, leading to a destructive effect on both trust and trustworthiness. Our findings challenge the universality of contact theory, highlighting that communication may backfire in settings where parties hold opposing views.
JEL Codes: C92, D83, D91
Keywords: Communication; Polarization; Trust; Trustworthiness; Out-group discrimination; Online experiment
The pre-registration for this paper is available here.
Partial Cartels and Umbrella Effects. An Experimental Study (with Lisa Bruttel and Holger Rau)
resubmitted to the Economic Journal
This paper experimentally studies cartel formation in a setting that allows for partial cartels, i.e., cartels involving only some of the firms in a market. To understand the consequences of this opportunity on cartelization rates and prices, we compare our setting to a treatment in which communication among the firms is only possible if they unanimously agree to communicate. In the partial cartel treatment, fewer firms choose to communicate but, given the number of firms willing to communicate, prices are higher, in particular when three of the four firms agree to communicate. Furthermore, we find strong evidence for umbrella effects, as firms that do not participate in the communication typically set a price close to the cartel’s price.
This paper experimentally studies cartel formation in a setting that allows for partial cartels, i.e., cartels involving only some of the firms in a market. To understand the consequences of this opportunity on cartelization rates and prices, we compare our setting to a treatment in which communication among the firms is only possible if they unanimously agree to communicate. In the partial cartel treatment, fewer firms choose to communicate but, given the number of firms willing to communicate, prices are higher, in particular when three of the four firms agree to communicate. Furthermore, we find strong evidence for umbrella effects, as firms that do not participate in the communication typically set a price close to the cartel’s price.
JEL Codes: C92, D43, L41
Keywords: (Partial) cartel; Collusion; Communication; Experiment
In this paper, we study how communication influences suspicion. The experiment uses a sender-receiver setup with a low probability of misaligned incentives for senders and receivers. We focus on the impact of open communication on the receivers’ suspicion as measured by the size of the deviation from the senders’ recommendation before and after the communication. Overall, communication substantially reduces suspicion, but some receivers become more suspicious during the communication. We disentangle these effects using machine learning methods to analyze the chat logs.
In this paper, we study how communication influences suspicion. The experiment uses a sender-receiver setup with a low probability of misaligned incentives for senders and receivers. We focus on the impact of open communication on the receivers’ suspicion as measured by the size of the deviation from the senders’ recommendation before and after the communication. Overall, communication substantially reduces suspicion, but some receivers become more suspicious during the communication. We disentangle these effects using machine learning methods to analyze the chat logs.
JEL Codes: C92, D82, D83
Keywords: Cooperation; Communication; Suspicion; Lying; Laboratory experiment
The pre-registration for this paper is available here.
Self-image concerns play a crucial role in economic decision-making. I conduct a laboratory experiment and offer a theoretical framework to examine whether self-image concerns are reference-dependent and whether individuals react differently to gains and losses in self-image. I focus on intelligence, a self-image-relevant domain, and find that individuals update their beliefs about performance more strongly if they experience losses than gains in self-image. On average, individuals tend to avoid self-image-relevant feedback in case of gains and losses in self-image. However, the willingness to acquire self-image-relevant feedback increases if the difference between the posterior and the prior beliefs about performance increases.
Self-image concerns play a crucial role in economic decision-making. I conduct a laboratory experiment and offer a theoretical framework to examine whether self-image concerns are reference-dependent and whether individuals react differently to gains and losses in self-image. I focus on intelligence, a self-image-relevant domain, and find that individuals update their beliefs about performance more strongly if they experience losses than gains in self-image. On average, individuals tend to avoid self-image-relevant feedback in case of gains and losses in self-image. However, the willingness to acquire self-image-relevant feedback increases if the difference between the posterior and the prior beliefs about performance increases.
JEL Codes: C91, D91
Keywords: Willful ignorance; Information avoidance; Self-image concerns; Motivated beliefs; Laboratory experiment
Consumer Sophistication in Credence Goods Markets (with Chi Trieu, Alexander Rasch, and Christian Waibel)
Agents’ naivete may amplify inefficiencies associated with information asymmetries. We study how consumer sophistication affects outcomes in a monopolistic credence goods market. In contrast to classic theoretical considerations, real-world observations cast doubt on market efficiency. Our study presents theoretical arguments and experimental evidence that the (lack of) sophistication of consumers’ beliefs with regard to sellers’ costs can explain these differences. In our experiment, we improve consumer sophistication and find that market efficiency increases when consumers explicitly observe firm profits. Sellers become more likely to provide sufficient verifiable quality, and prices are significantly closer to equal-markup prices. Furthermore, we describe how social preferences interact with consumer sophistication.
Agents’ naivete may amplify inefficiencies associated with information asymmetries. We study how consumer sophistication affects outcomes in a monopolistic credence goods market. In contrast to classic theoretical considerations, real-world observations cast doubt on market efficiency. Our study presents theoretical arguments and experimental evidence that the (lack of) sophistication of consumers’ beliefs with regard to sellers’ costs can explain these differences. In our experiment, we improve consumer sophistication and find that market efficiency increases when consumers explicitly observe firm profits. Sellers become more likely to provide sufficient verifiable quality, and prices are significantly closer to equal-markup prices. Furthermore, we describe how social preferences interact with consumer sophistication.
JEL Codes: C91, D82, D91
Keywords: Credence goods; Limited attention; Market inefficiency; Laboratory experiment
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