Owen R. Phillips

The role of gender in a non-cooperative game

Abstract Markets are experimentally constructed to test for differences in choice behavior attributable to gender. Subjects participate in two-person, non-cooperative, repeated games. Choices are made simultaneously, opponents are anonymous, and no one knows how many periods are in an experiment. At the beginning of experiments women tend to be more cooperative than men and have a higher variance of choices. After 25 periods these differences vanish. For subject pairs, there is no statistically important relation between paired choice levels and the number of males in a pair. However we find the variance of choices larger for pairs with males.

Information and Cost Asymmetry in Experimental Duopoly Markets

We analyze data from experimental duopoly markets to assess the role information plays in facilitating collusion. In these markets, profitability can be common knowledge or private information. Market outputs are estimated in structures with symmetric and asymmetric costs under the two information conditions. Symmetric markets are more cooperative when profitability is common knowledge; asymmetric market outputs are unaffected by information differences. However, common knowledge in asymmetric markets increases the share of the output produced by the low-cost producer, and therefore increases industry efficiency.

Collusive Practices in Repeated English Auctions: Experimental Evidence on Bidding Rings

The repeated meeting of buyers at English auctions, where multiple units are sold, is a common occurrence. The art auctions at Sotheby’s, Christie’s, and other prestigious auction houses are attended by a regular group of institutional buyers. More mundanely, the same taxicab buyers meet at vehicle auctions for used police cars (Jon P. Nelson, 1995). Commission order buyers attend the same livestock and agricultural commodity auctions; these buyers may be agents for multiple meat processors (U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, 2001). The 1946 American Tobacco antitrust case [American Tobacco Co. et al. v. United States, 328 U.S. 781 (1946)] is a well-known account of how buyers of tobacco operated to hold down the price of auctioned leaf tobacco at various sites. Buyers for the big three cigarette manufacturers had developed facilitating practices that helped them purchase raw tobacco at relatively low prices. These buyers voluntarily restricted themselves to attend the same auctions; buyers were aware of the amount of leaf and the tobacco grades available at auction sites; they had instructions from the cigarette makers on the highest bid prices they could pay; and communication among these buyers seemed evident from a coordinated practice of buying low-grade tobacco that was not used by the makers. In the sale of livestock, cattle producers have claimed that packer-buyers act to hold down cattle prices at the auction site. There are a few large processors who give their agents “buy orders.” These orders, along with further communication between the processor and agent, instruct the agent on the number of cattle to purchase during a given week and provide a schedule of prices they can pay for varying types of cattle. Some agents represent more than one processor (or packer) and therefore have multiple buy orders. Agents repeatedly meet each other at regional cattle auctions. They may not be the only buyers, but they are the largest purchasers of slaughter cattle brought to market, and at most auction sites have substantial monopsony power. This paper documents the impacts of several practices that may facilitate low sale prices when multiple units are sold at repeated English auctions. Laboratory English auction markets are created. The number of symmetric buyers attending the auction is either six or two, with total demand in these two environments held constant. The six-buyer market is intended to represent a relatively competitive environment, while auctions with two buyers represent rivalry with substantial monopsony power held by each agent. We use these two market environments to study how selected treatments, or facilitating influences, affect the behavior of buying agents. The six-buyer market generally is viewed as a control for comparison to the dominant twobuyer environment, but very collusive behavior may be observed in the six-buyer auctions, depending upon market practices. * Phillips: Department of Economics and Finance, University of Wyoming, P.O. Box 3985, Laramie, WY 82071 (e-mail: owenphil@uwyo.edu); Menkhaus: Department of Agricultural and Applied Economics, University of Wyoming, P.O. Box 3354, Laramie, WY 82071 (e-mail: menkhaus@uwyo.edu); Coatney: U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, Competition Branch, Aurora, CO 80011 (e-mail: kalyn.t.coatney@usda.gov). This work has been supported by the U.S. Department of Agriculture under grant numbers USDAGIPSNC5418 and USDAG00354009126. The findings and conclusions expressed in this paper are those of the authors and do not necessarily reflect the views of the funding agency. 1 These are regional auctions houses where slaughter cattle (primarily cull cows and fed steers and heifers) and feeder cattle are sold. Cull cows are animals taken out of a herd and slaughtered because of age, inability to produce calves, or reduced milk production. Concerns regarding slaughter cow possessors sharing common purchasing agents have been raised in “Assessment of the Cattle and Hog Industries Calendar Year 2000,” U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, June 2001.

Market Regulation and Multimarket Rivalry

Multimarket contact between duopolists in an X and Y market is modelled with a trigger strategy. We show that mildly restrictive price-cap regulation in the X market decreases Y market quantities; but restrictive caps in the X market have a positive impact on Y market outputs. Behavior in laboratory markets confirms these propositions. Regulation that lowers X market prices by a small amount results in a statistically significant reduction in Y outputs. When the regulated X market price is reduced to the Cournot/Nash level, Y market outputs rise to a point statistically indistinguishable from the unregulated quantities.

An Experimental Economics Approach to Analyzing Price Discovery in Forward and Spot Markets

Laboratory experiments are used to generate data that facilitate investigation of pricing behavior in forward and spot markets. Results suggest a tendency for prices in a spot market to converge to levels higher than those in a forward market. The difference in these market environments is the supply schedule. Buyers in a spot market are aware that supply is inelastic and become relatively aggressive bidders. Forward markets have a relatively elastic supply schedule and buyers fare better. This may motivate firms to promote forward markets and/or vertically integrate in the procurement of inputs.

In Support of Trigger Strategies: Experimental Evidence from Two-Person Noncooperative Games

Cooperative equilibria can be supported in a repeated game when players use trigger strategies. This paper tests how well trigger strategies explain behavior in two-person experimental games. Reducing payoffs for choices larger than the Cournot level induces smaller average outputs, behavior generally consistent with trigger strategy models. Reducing payoffs for choices well above the Cournot level will not affect behavior if actions are consistent with a trigger strategy involving longer-lived, less intense punishment phases (the grim-reaper strategy), but would matter for trigger strategies with short-lived but intense punishment phases. Results show that behavior is most consistent with the former.

The market for academic journals

Library journal subscriptions are treated as a public good. A monopoly publisher sells subscriptions to both libraries and individuals. For individuals, the journal is a private good. Profit maximization can lead to high institutional prices and few individual subscribers. This outcome is reinforced by increases in publishing costs. Library serial prices fall if patrons pay access costs and/or there is congestion. Data are presented to support these conclusions. Library prices are two to ten times higher than private prices; there are as few as two to four individual subscribers in an academic journal market. Library subscription prices are directly related to the number of consumers who use the library serial.

Laboratory Behavior in Spot and Forward Auction Markets

Auctions that require advance production increase seller costs because inventories must be held. This cost does not exist in production-to-demand markets for which production follows trading, and sales exactly match quantities produced. Data from laboratory computerized double auction markets show that advance-production prices are significantly higher and quantities traded are significantly lower than they are in production-to-demand auctions. Price convergence patterns show advance-production sellers moving toward 9% higher prices and 22% greater earnings.

Vertical integration and collusive incentives: an experimental analysis

Abstract We consider vertically related industries with multiple downstream markets; firms make simultaneous output choices in a repeated game. Upstream duopolists merge with producers in one of the downstream markets that also is a duopoly. Experimental duopoly markets are constructed to assess the effects of vertical integration upon outputs and profits. We find that integration raises outputs in both downstream and upstream markets, although only the upstream effect is statistically significant. Integrated profits are lower and consumer welfare is higher. The integrated markets tend to equilibrate more quickly.

Price Discovery in Private Negotiation Trading with Forward and Spot Deliveries

Advance production in spot markets increases seller costs because inventories must be held. This cost does not exist in production-to-demand (or forward) markets, for which production follows trading, and sales exactly match quantities produced. Data from laboratory-computerized markets that trade through private negotiation are analyzed. For the experimental supply and demand conditions, price convergence patterns show spot prices 10.8% lower and the number of trades 12.4% fewer than forward outcomes. The adverse impact of advance production and private negotiation on seller earnings is emphasized when earnings are compared with those from double auction trading.