Rosario Gomez

Predation, asymmetric information and strategic behavior in the classroom: an experimental approach to the teaching of industrial organization

Abstract Classroom market experiments can complement the theoretical orientation of standard industrial organization courses. This paper describes various experiments designed for such courses, and presents details of a multi-market game with entry and exit. In this experiment incumbents have a cost advantage in their ‘home’ markets, and mobile firms decide which market to enter. After entry decisions are made, firms choose prices and quantities to offer for sale. Predatory pricing is possible with this setup, and the experiment can be used to motivate discussions of monopoly, competition, entry, and efficiency. Other classroom experiments with an industrial organization focus are surveyed.

A Common Pool Resource Game with Sequential Decisions and Experimental Evidence

We describe a common pool resource game in which players choose how much of the stock to extract in a sequential manner. There are two choices and one represents taking a larger proportion of the stock than the other. After a player makes a choice, the remaining stock grows at a constant rate. We consider a game with a finite number of alternating moves. It is shown that changes in the larger proportion of the stock that the players are allowed to take and the growth rate affect equilibrium, but have little effect on behavior in the laboratory. In addition to observing more cooperation than predicted, we observe that parameters that are strategically irrelevant affect behavior. The results of this research might help policy makers in developing adequate policies to prevent overexploitation of some natural renewable resources.

Chapter 22 Predatory Pricing: Rare Like a Unicorn?

Publisher Summary Despite the discovery of predatory intent in several widely cited antitrust cases, many industrial organization economists have argued that predatory pricing is irrational and rarely observed. The argument is that pricing below cost in order to drive competitors out of the market will be irrational for two reasons: (1) there are more profitable ways (e.g., acquisitions) to eliminate competitors, and (2) future price increases will result in new entry. Decisions in antitrust cases have often resulted from documented predatory intent, which is sometimes attributed to an “irrational” motive for management to eliminate rivals. In the absence of a “smoking gun,” arguments turn on Areeda–Turner cost-based tests, which are difficult to apply given the multi-product nature of most business operations. For these reasons, the issue of predatory pricing is a natural topic for laboratory studies where costs are induced directly.