MULTIPLE EQUILIBRIA AND DETERRENCE IN AIRLINE MARKETS

We use a longitudinal dataset from the U.S. airline industry to estimate three different models for entry games with very general forms of heterogeneity between U.S. carriers in airline markets: a simultaneous game with complete information and two sequential games with or without strategic entry deterrence. In a sequential game with entry deterrence, an incumbent decides whether to incur a cost to deter potential entrants. We show that the model with sequential games with strategic deterrence provides the best fit to the data. We conclude that the results reject the hypothesis of a static model and support the hypothesis of the existence of strategic entry deterrence. (JEL L1)     

SIMULTANEOUS DECISION‐MAKING IN COMPETITIVE AND COOPERATIVE ENVIRONMENTS

We experimentally investigate simultaneous decision‐making in two contrasting environments: one that encourages competition (lottery contest) and one that encourages cooperation (public good game). We find that simultaneous participation in the public good game affects behavior in the contest, decreasing sub‐optimal overbidding. Contributions to the public good are not affected by participation in the contest. The direction of behavioral spillover is explained by differences in strategic uncertainty and path‐dependence across games. Our design allows us to compare preferences for cooperation and competition. We find that in early periods, there is a negative correlation between decisions in competitive and in cooperative environments. (JEL C72, C91)     

ENTRY COORDINATION AND AUCTION DESIGN WITH PRIVATE COSTS OF INFORMATION ACQUISITION

Auction design with endogenous entry is complicated by entry coordination among bidders due to multiple entry equilibria issue. This article studies auction design when information acquisition costs are private information of bidders. We show that this problem can be resolved by sufficient dispersion in these costs. First, we find that a simple second‐price auction with no entry fee and a reserve price equal to the seller's valuation is ex ante efficient, while a revenue‐maximizing auction involves personalized entry fees, which are determined by the hazard rates of their information acquisition cost distribution. Second, we show that sufficient dispersion in the information acquisition costs (more dispersion than a particular uniform distribution by the Bickel‐Lehman dispersive order) can coordinate bidders and implement uniquely the desirable entry. The dispersion in information acquisition costs is also necessary for this “unique implementation” result. (JEL D44, D82)     

THE IMPACT OF TRADE COSTS ON FIRM ENTRY,EXPORTING, AND SURVIVAL IN KOREA

This study examines how changes in trade costs have affected entry, exit, productivity, and exporting in the Korean manufacturing sector. We verify several predictions of heterogeneous‐firm models of international trade. For example, falling import‐trade costs are associated with less entry and lower market shares among existing domestic firms, and higher total factor productivity for Korean manufacturing as a whole. The size of firms plays an important role in many of our results. New domestic firms are more likely to be small, but large firms are less likely to exit and more likely to have an increase in total factor productivity. (JEL F10, D24)     

TECHNOLOGICAL ASYMMETRY AMONG FOREIGN INVESTORS AND MODE OF ENTRY

How does the preferred entry mode of foreign investors depend on their technological capability relative to that of their rivals? This article develops a simple model of entry mode choice and evaluates its main testable implication using data on foreign investors in Eastern European countries and the successor states of the Soviet Union. The model considers competition between two asymmetric foreign investors and captures the following trade‐off: while a joint venture (JV) helps a foreign investor secure a better position in the product market vis‐à‐vis its rival, it also requires that profits be shared with the local partner. The model predicts that the efficient foreign investor is less likely to choose a JV and more likely to enter directly relative to the inefficient investor. Our empirical analysis supports this prediction: foreign investors with more sophisticated technologies and marketing skills (relative to other firms in their industry) tend to prefer direct entry to JVs. This empirical finding is robust to controlling for host country–specific effects and other commonly cited determinants of entry mode. (JEL F13, F23, O32)     

COMPETITIVE BALANCE MEASURES IN SPORTS LEAGUES: THE EFFECTS OF VARIATION IN SEASON LENGTH

Appropriate measurement of competitive balance is central to the economic analysis of professional sports leagues. We examine the distributional properties of the ratio of standard deviations (RSD) of points percentages, the most widely used measure of competitive balance in the sports economics literature, in comparison with other standard‐deviation‐based measures. Simulation methods are used to evaluate the effects of changes in season length on the distributions of competitive balance measures for different distributions of the strengths of teams in a league. The popular RSD measure performs as expected only in cases of perfect balance; if there is imbalance in team strengths, its distribution is sensitive to changes in season length. It is therefore not recommended for comparisons of competitive balance for different sports leagues with different numbers of teams and/or games played. (JEL L83, D63, C63)     

HISTORY DEPENDENCE AND THE FORMATION OF SOCIAL PREFERENCES: AN EXPERIMENTAL STUDY

We study the minimal contributing set (MCS) game, a three‐person sequential step‐level public goods game. The behavior of critical third players changes with experience in this game even though they face no strategic or payoff uncertainty. We explore why these changes occur by manipulating subjects' experience in the first half of the experiment. The treatments give subjects very different initial experiences, but all treatments move subjects' choices toward experienced subjects' play in the control sessions. Long‐run play is indistinguishable across treatments. Our results are more consistent with the “discovered preferences” hypothesis ( Plott 1996 ) than either the “constructed preference” or “reference point” hypotheses. (JEL H41, C72, C92)     

OPTIMAL PRICE OF ENTRY INTO A COMPETITION

A continuum of contestants are choosing whether to enter a competition. Each contestant has a type, and of those who enter, the ones with highest types receive prizes. A profit‐maximizing firm controls entry, and charges a price for it. I show that an increase in the value of each prize leads the firm to raise the price while keeping the intensity of entry fixed. Conversely, when the mass of prizes increases, the firm initially keeps the price constant while allowing entry to increase; and later—raises the price. (JEL C72, D82, D83)     

THE EFFECTS OF GRADUATING FROM COLLEGE DURING A RECESSION ON LIVING STANDARDS

Graduating from college during a recession has persistent negative effects on labor-market outcomes. This study assesses the welfare impact of a recession at entry by analyzing family formation behaviors and asset holdings. Scrutiny of the National Longitudinal Survey of Youth 1979 (NLSY79) reveals that despite a decline in hourly wages, business cycle conditions at entry to the labor market do not affect family formation, car or home ownership, or net asset holdings in the long run. Evidence suggests that individuals who graduate in bad times tend to move to states with lower living costs to secure living standards. (JEL E21)     

Gender and Socioeconomic Status Differences in First and Second Marriage Formation

In this article, we address how first and second marriages are formed by asking whether SES has similar effects on first and second marriage entry. Like many studies of first marriage, we focus on gender, socioeconomic characteristics (education, income, and employment status), and gender differences in the effect of SES. To examine this question, we use the NLSY79 (n = 12,231 never‐married and 3,695 divorced persons), discrete‐time logistic regression, and heterogeneous choice models to test for statistically significant differences by gender and between first and second marriages. Our models show gender differences in first and second marriage entry, that the effect of SES on marriage entry differs between first and second marriage, and that the interaction between gender and SES has a unique association with marital entry for never‐ and previously married individuals. Our results have implications for understanding marriage formation, stratification across the life course, and the well‐being of divorced persons who remarry.     

OFFSHORING PRODUCTION: A SIMPLE MODEL OF WAGES,PRODUCTIVITY, AND GROWTH

We examine the relationship between offshoring and the labor market in an occupational choice model of trade and endogenous growth where workers are employed on the basis of their individual skill levels. Trade liberalization leads to offshoring and reduces employment in the manufacturing sector. Displaced workers move into traditional and innovation sectors according to their skill levels, shaping real wages and aggregate productivity in the manufacturing sector. The paper aims to show how inter‐sectoral labor market adjustments, highlighted by skill heterogeneity, could be a possible explanation for the simultaneous rise in productivity and reduction in real wages that have coincided with the sharp escalation of offshoring activities in the U.S. manufacturing sector since 2004. (JEL F16, F23, J24)     

AN EXPERIMENTAL STUDY ON THE RELEVANCE AND SCOPE OF NATIONALITY AS A COORDINATION DEVICE

In a period marked by extensive cross‐national interactions, nationality may present an important focal point that individuals coordinate on. This study uses an experimental approach to study whether nationality serves as a coordination device. We let subjects from Japan, Korea, and China play coordination games in which we vary information about their partner. The results show that nationality serves as a coordination device if common nationality is the only piece of information available to the subjects. The strength of this device is nationality‐dependent and diminishes when participants are provided with additional information about their partner. We also find that subjects are likely to coordinate on the Pareto‐dominant equilibrium at about the same rate if the partner has a different nationality than if nationality is unknown. (JEL C91, C92, Z1, Z13)     

CONTEST DESIGN: AN EXPERIMENTAL INVESTIGATION

This paper experimentally compares the performance of four simultaneous lottery contests: a grand contest, two multiple prize settings (equal and unequal prizes), and a contest which consists of two subcontests. Consistent with the theory, the grand contest generates the highest effort levels among all simultaneous contests. In multi‐prize settings, equal prizes produce lower efforts than unequal prizes. The results also support the argument that joint contests generate higher efforts than an equivalent number of subcontests. Contrary to the theory, there is significant over‐dissipation. This over‐dissipation can be partially explained by strong endowment size effects. Subjects who receive higher endowments tend to over‐dissipate, whereas such over‐dissipation disappears when the endowments are lower. This behavior is consistent with the predictions of a quantal response equilibrium. We also find that less risk‐averse subjects over‐dissipate more. (JEL C72, C91, D72)     

APPLICATIONS BARRIER TO ENTRY AND EXCLUSIVE VERTICAL CONTRACTS IN PLATFORM MARKETS

Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to an applications barrier to entry. Exclusive contracts in vertical relationships between the platform provider and software supplier can heighten entry barriers. We test these theories in the home video game market. We find that indirect network effects from software on hardware demand are present, and that exclusivity takes market share from rivals, but only when most games are nonexclusive. The marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to domination by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting. (JEL L42, L63, D12)     

INCIDENCE AND CONSEQUENCES OF RISK‐TAKING BEHAVIOR IN TOURNAMENTS—EVIDENCE FROM THE NBA

We empirically explore the relevance and efficiency of risk‐taking behavior in tournaments. We use data from the National Basketball Association (NBA) and measure risk‐taking by the fraction of three‐point shots in basketball games. We examine how point differences between teams during games affect their subsequent risk‐taking behavior. It is found that teams that are trailing are more likely to increase their use of three‐point shots. We additionally analyze the consequences of this change in behavior. Enhanced risk‐taking is inefficient in the vast majority of cases and is only beneficial if a team is trailing by a rather large margin. We discuss possible explanations for these decision errors. (JEL M5, D81, J30)     

NOT ALL RIVALS LOOK ALIKE: ESTIMATING AN EQUILIBRIUM MODEL OF THE RELEASE DATE TIMING GAME

I develop a new empirical model for discrete games and apply it to study the release date timing game played by distributors of movies. The results suggest that release dates of movies are too clustered around big holiday weekends and that box office revenues would increase if distributors shifted some holiday releases by one or two weeks. The proposed game structure could be applied more broadly to situations where competition is on dimensions other than price. It relies on sequential moves with asymmetric information, making the model particularly attractive for studying (common) situations where player asymmetries are important. (JEL C13, C51, L13, L15, L82)     

ENDOGENOUS TIMING IN CONTESTS WITH DELEGATION

We study two‐player contests in which each player hires a delegate, and the delegates decide endogenously when to expend their effort. First, we look closely at the delegates' decisions on when to expend their effort, given contracts between the players and the delegates, and look at the players' decisions on their contracts. Then, we compare the outcomes of the endogenous‐timing framework with those of the simultaneous‐move framework. We show that the higher‐valuation player offers her delegate greater contingent compensation than her opponent, the delegate of the higher‐valuation player chooses his effort level after observing his counterpart's, the equilibrium expected payoff of the delegate of the higher‐valuation player is greater than that of his counterpart, and economic rent for each delegate exists. We show that, in the endogenous‐timing framework, each player offers her delegate better contingent compensation, each delegate's expected payoff is greater, and each player's expected payoff is smaller, as compared with the simultaneous‐move framework. (JEL D72)     

THE MORAL COSTS OF NASTINESS

We introduce two variants of the one‐shot joy‐of‐destruction minigame (mini‐JOD). Two players are endowed with the same amount of money. They simultaneously decide whether or not to reduce the other player's payoff at an own cost. In one treatment there was a probability that nature would destroy the opponent's money anyway. We test whether this feature reduces the moral costs of nastiness, and find that destruction rates rise significantly, despite the absence of strategic reasons. (JEL C72, C91, D03)     

CAN ENTRY OR EXIT EVENT STUDIES INFORM HORIZONTAL MERGER ANALYSIS? EVIDENCE FROM GROCERY RETAILING

This study estimates how prices change following the entry and exit of grocery retailers. We estimate the effects of entry (exit) by comparing affected markets to a set of unaffected markets using both a difference‐in‐difference estimator and a synthetic control estimator. We find that entry typically results in reduced prices. More surprisingly, we find that exit is frequently associated with falling prices. Our estimated effects of entry on grocery prices are similar in magnitude to estimates of merger price effects in the supermarket industry. This finding suggests that entry event studies may be a useful tool for horizontal merger analysis. (JEL L11, L4, L81)     

DIRECT TESTS OF INDIVIDUAL PREFERENCES FOR EFFICIENCY AND EQUITY

Departures from “economic man” behavior in many games in which fairness is a salient characteristic are now well documented in the experimental economics literature. These data have inspired the development of models of social preferences that assume agents have preferences for equity and efficiency as well as their own material payoffs. Empirical failure of the economic man model comes from experiments that provide direct tests of its distinguishing characteristic: indifference to the payoffs of others. This paper reports an experiment that subjects popular social preferences models to the same type of empirical challenge. We report direct tests of the distinguishing characteristics of these models: preference for allocations that have higher efficiency and greater equity. (JEL A12, A13, B49, C70, C91, D63)