I felt like giving a little primer on the results of an experiment that Paolo and I did in December, about the incentives for firms to confuse consumers. I was motivated by seeing the following recent article in JEBO:
“Consumer Myopia, Competition and the Incentives to Unshroud Add-on Information” by Tobias Wenzel
As in most (all?) articles on shrouding, this paper considers only the one stage game and finds as usual that firms will want to make their prices transparent… while ignoring the impact of collusion.
Yes, I did the same thing in my paper in Economica with Bob Sugden on spurious complexity and common standards (http://dx.doi.org/10.1111/j.1468-0335.2011.00895.x). But now, from a recent experiment with Paolo Crosetto where we test a similar model in the lab, we found that firms were quite able to collude not to unshroud after experiencing the horrors of an unshrouded equilibrium!
I am excited about writing up the results, as in fact, being able to choose to make prices transparent or not can help collusion compared to a standard setting with no possible shrouding, and this in two ways: by serving as a signal that one wishes to make peace with others, and also by making the punishment phase harder on those who deviate and unshroud. Once said, this looks obvious now, but I guess this has been missed by others than us, so I don’t feel so bad about missing it.
I will be working in the next month or so on writing up the results, but I am now busy finishing writing a paper on the relation between exit costs and incentives to exit in a repeated version of the public good game with imperfect public monitoring and stochastic outcomes. Very interesting, but it has been hell to find the correct perspective in writing about the experimental findings.
I am very happy of course to join Professor Werner Güth‘s Strategic Interaction research group, but I will really miss working at GSBC as well. I was very happy to work there and I am particularly thankful to Professor Uwe Cantner, director of the GSBC, and to Dr. Kristina von Rhein, who was the research coordinator at GSBC for most of my stay there. They both took very good care of me and I have been very happy working with them!
During my stay at GSBC, I got 3 papers and one book chapter published (here, here, here and here). I also worked with Caterina Giannetti, Paolo Crosetto and Gerhard Riener on a total of three research papers, two of which are now under submission (here and here).
I went to a number of international conferences (EEA 2009, EARIE 2011 and Econometric Society 2011), workshops (ACLE 2012, Crem-Economix 2010), participated in two excellent summer schools (at the MPI of Economics here in 2009 and at the MPI for Human Development in Berlin in 2011), organized a workshop on the economics of open source software in 2010 (with Kristina von Rhein and Sebastian von Engelhardt), and had great fun organizing a hand-on introduction to experimental economics with Paolo Crosetto at last year’s Night of Science in Jena (people played our experiment, introduced with a poster here).
The PhD programme at GSBC is certainly a program I would rank highly in terms of the quality of the research environment being provided there. There is a summer schools every year (in a castle, no less!), where PhD students present their work and train their techniques (link for two years ago). There are seminars every week with presentations by external presenters, and a school day every year on a specific topic (this year about migration). There are also research assistants available (I was in charge of that along with Kristina), money for going to conferences, and last but not least, advanced courses in a variety of specialized fields (see here for current list). I was particularly impressed by the very good courses in econometrics and experimental methods being led by Professor Oliver Kirchkamp, but there were also courses in a variety of other topics. Econometrics is certainly something I started to more or less understand only since I came here.
The crowd of PhD students in floors 1 and 3 of the building at Bachstrasse 18k, where the GSBC resides, is also quite impressive. There are not only PhD students from the GSBC, but also from the EIC, which specializes on the economics of innovation, and from the IMPRS, which focuses on decisions under uncertainty. Students come from the Czech Republic, Poland, Italy, Chile, Brazil, Nigeria, China, India, Pakistan, Iran, United States, Russia, Netherland, Ghana, Belarus, etc… There are even some Germans there! Each of those schools has its own research presentations, seminars, summer schools, courses… which means that there is always something new going on, always interesting seminars to attend, and many opportunities to socialize as well!
So anyway, I am remaining in Jena and will keep on benefiting from its very good research environment, especially given the excellent interplay between the Max Planck Institute and the University. For my work at the MPI, I plan to collect a new, more detailed panel dataset on the activity of bloggers to keep on refining my work with Caterina Giannetti. I also am working on two ideas for experiments, one following on my paper with Paolo Crosetto, the other dealing with the perception of fairness (details still secret!). This should keep me busy for a while!
Part of the workshop took place at De Industrieele Groote Club, a very luxurious environment with wide comfortable chairs for wide, comfortable industrialists!
The theme this year was Behavioral Competition and Regulation, and I presented my paper with Paolo Crosetto on whether consumers prefer offers that are easy to compare (link).
A number of interesting papers were presented (see list here). Botond Köszegi looked at markets where some consumers are vulnerable to firms’ deceptive strategies (link) and showed that the use of deceptive strategies is particularly likely to survive in socially wasteful industries. Maurice E. Stucke discussed how to integrate insights from behavioral economics into competition policy (link), and underlined how following the rule of reason could weaken the rule of law when dealing with competition cases.
There were a number of interesting experimental papers as well. Among those, Giancarlo Spagnolo investigated whether collusion is helped or hindered by the speed with which one can react to deviations from the collusive agreement (link) and Jona Linde discussed how nudges can lull consumers into not paying sufficient attention to the choice tasks at hand (link, paper joint with Thomas de Haan, who now works here at the EIC).
In most of my conversations there, I tried to push the idea that we should also get rid of the assumption that firms are behaving honestly vis-à-vis consumers. That is, we generally assume that a contract, once signed, will be respected, and that there is an inherent “true”, correct way to interpret a contract. This may hold in well-regulated societies, but does not apply well much further.
I am therefore interested in work on ambiguous contracts, how their interpretation will depend on the relative strength of the contracting parties, and how far they can divert from short-term self-interest.