Discussion Paper No. 524
January 29, 2025
Finding a Good Deal: Stable Prices, Costly Search, and the Effect of Entry
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We study markets in which potential buyers engage in costly search to find a good deal. Our novel solution concept for prices builds upon the idea that any movement in a firm's price is followed by an opportunity for its competitors to respond with special offers. This mechanism selects the highest prices such that no firm wishes to undercut a competitor. We identify a distinctive closed-form pattern of disperse prices that uniquely satisfy our pricing solution, and pair that price profile with optimal fixed-sample search. In a stable equilibrium with active search, the intensity of search and consumer surplus are lower and industry profit is higher with more competitors. In a concentrated oligopoly, complete search in equilibrium can eliminate industry profit.
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Discussion Paper No. 523
January 23, 2025
Stable Price Dispersion
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We study the pricing of homogeneous products sold to customers who consider different sets of suppliers. We seek prices that are stable in the sense that no firm wishes to undercut any rival or to raise its price when rivals have a subsequent opportunity to undercut it. We identify stable and dispersed prices that emerge from both collective choice and non-cooperative pricing games, and derive predictions for prices across several price-consideration specifications. We show how the implications for firms and customers compare to those generated by conventional approaches.
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Discussion Paper No. 519
December 30, 2024
Do Women Comply More Than Men? Experimental Evidence from a General Population Sample
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Women are often perceived as more compliant than men; however, the literature provides inconclusive evidence. Using a novel experimental design comprising two complementary experiments, we test this claim in online samples representative of the German adult population. The first experiment (N=1600) features a probabilistic social dilemma game (PDG) in which participants can increase their individual payoff at the expense of exposing themselves and their group to probabilistic losses. In two treatment conditions, they receive either a recommendation on socially optimal behavior or a recommendation and information on weakly non-compliant peer behavior. We find that the recommendation strongly affects behavior but more so for women than for men. However, information on the non-compliant behavior of others does not induce significantly different responses in men and women. In the second experiment (N=522), we elicit empirical and normative expectations about behavior in the PDG with a recommendation to study the role of norms in following it. While men and women are expected to hold similar normative beliefs, men are expected to follow the recommendation less often, suggesting that compliance is a female social norm.
Keywords:
gender; compliance; public good; social dilemma; risk-taking; social norms;
JEL-Classification:
J16; I12; D81; H41;
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Discussion Paper No. 508
July 31, 2024
Measuring Preferences for Algorithms
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We suggest a simple method to elicit individual preferences for algorithms. By altering the monetary incentives for ceding control to the algorithm, the menu-based approach allows for measuring, in particular, the degree of algorithm aversion. Using an experiment, we elicit preferences for algorithms in an environment with measurable performance accuracy under two conditions|the absence and the presence of information about the algorithm's performance. Providing such information raises subjects' willingness to rely on algorithms when ceding control to the algorithm is more costly than trusting their own assessment. However, algorithms are still underutilized.
Keywords:
algorithm aversion; delegation; experiment; preferences;
JEL-Classification:
C91; D83; D91;
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Discussion Paper No. 498
February 23, 2024
The Strategic Value of Data Sharing in Interdependent Markets
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Large, generalist, technology firms—so-called “big-tech” firms—powerful in their primary market, routinely enter secondary markets consisting of specialist firms. Naturally, one might expect a specialist firm to be fiercely protective of its data as a way to maintain its market position in the secondary market. Counter to this intuition, we demonstrate that a specialist firm willingly shares its market data with an intruding tech generalist. We do so by developing a model of crossmarket competition in which data collected via consumer usage in each market is a factor of product quality in both markets. We show that a specialist firm shares its data to strategically create co-dependence between the two firms, thereby softening competition and transforming the generalist firm from a traditional competitor into a co-opetitor. For the generalist intruder, data from the specialist firm substitute for its own investments in product quality in the secondary market. As such, the act of sharing data makes the intruder a stakeholder in the valuable data collected by the specialist, and consequently in the specialist’s continued success. Moreover, while the firms benefit from data sharing, consumers can be worse off from the weaker price competition and lower investments in innovation. Our results have managerial and policy implications, notably on account of backlash against data collection and the market power of big tech firms.
Keywords:
data-driven quality improvements; externalities; co-opetition; data sharing;
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Discussion Paper No. 476
December 13, 2023
Overcoming Time Inconsistency with a Matched Bet: Theory and Evidence from Exercising
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This paper introduces the matched-bet mechanism. The matched bet is an easily applicable and strictly budget-balanced mechanism that aims to help people overcome time-inconsistent behavior. I show theoretically that offering a matched bet helps both sophisticated and naive procrastinators to reduce time-inconsistent behavior. A field experiment on exercising confirms the theoretical predictions: offering a matched bet has a significant positive effect on gym attendance. Self-reported procrastinators are significantly more likely to take up the matched bet. Overall, the matched bet proves a promising device to help people not to procrastinate.
Keywords:
monetary incentives; market design; field experiment; health behavior;
JEL-Classification:
C93; D47; D90; I12;
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Discussion Paper No. 475
Should Individuals Choose their Own Incentives? Evidence from a Mindfulness Meditation Intervention
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Traditionally, incentives to promote behavioral change are assigned rather than chosen. In this paper, we theoretically and empirically investigate the alternative approach of letting people choose their own incentives from a menu of increasingly challenging and rewarding options. When individuals are heterogeneous and have private information about their costs and benefits, we theoretically show that leaving them the choice of incentives can improve both adherence and welfare. We test the theoretical predictions in a field experiment based on daily meditation sessions. We randomly assign some participants to one of two incentive schemes and allow others to choose between the two schemes. As predicted, participants sort into schemes in (partial) agreement with the objectives of the policy maker. However, in contrast to our prediction, participants who could choose complete significantly fewer sessions than participants that were randomly assigned. Since the results are not driven by poor selection, we infer that letting people choose between incentive schemes may bring in psychological effects that discourage adherence.
Keywords:
monetary incentives; dynamic incentives; field experiment; mental health;
JEL-Classification:
C09; D03; D08; I01;
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Discussion Paper No. 471
December 9, 2023
Motivated Procrastination
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Traditionally, economic models have attributed procrastination to present bias. However, procrastination may also arise when individuals derive anticipatory utility from holding motivated, overly optimistic beliefs about the workload they need to complete. This study provides a rigorous empirical test for this notion of `motivated procrastination'. In a longitudinal experiment over four weeks, individuals have to complete a cumbersome task of unknown length. They are exposed to exogenous variation in i) their expectation regarding their workload and ii) scope for motivated reasoning. We find that scope for motivated reasoning allows workers to hold substantially more optimistic beliefs and identify a causal link between the exogenous variation in beliefs and the deferral of work to the future. This systematic belief-based delay of work (motivated procrastination) turns out to be robust to accounting for decision-makers' time preferences and emotional responses, and looms largest for decision makers who tend to not acquire information that may include negative news.
Keywords:
anticipatory utility; beliefs; memory; motivated cognition; procrastination; real effort; task allocation;
JEL-Classification:
C91; D83; D84; D90; D91;
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Discussion Paper No. 468
November 30, 2023
The Effect of Incentives in Non-Routine Analytical Team Tasks
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Despite the prevalence of non-routine analytical team tasks in modern economies, little is understood regarding how incentives influence performance in these tasks. In a series of field experiments involving more than 5,000 participants, we investigate how incentives alter behavior in teams working on such a task. We document a positive effect of bonus incentives on performance, even among teams with strong intrinsic motivation. Bonuses also transform team organization by enhancing the demand for leadership. Exogenously increasing teams' demand for leadership results in performance improvements comparable to those seen with bonus incentives, rendering it as a likely mediator of incentive effects.
Keywords:
team work; bonus; incentives; leadership; non-routine; exploration;
JEL-Classification:
C92; C93; J33; D03; M52;
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Discussion Paper No. 466
November 29, 2023
Commitment Requests Do Not Affect Truth-Telling in Laboratory and Online Experiments
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Using a standard cheating game, we investigate whether the request to sign a no-cheating declaration affects truth-telling. Our design varies the content of a no-cheating declaration (reference to ethical behavior vs. reference to possible sanctions) and the type of experiment (online vs. offline). Irrespective of the declaration's content, commitment requests do not affect truth-telling, neither in the laboratory nor online. The inefficacy of commitment requests appears robust across different samples and does not depend on psychological measures of reactance.
Keywords:
cheating; lying; truth-telling; compliance; commitment; no-cheating rule; no-cheating declaration; commitment request;
JEL-Classification:
C91; C93; D03;