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On the profitability of collusion in location games

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  • Huck, Steffen
  • Knoblauch, Vicki
  • Müller, Wieland

Abstract

On the basis of a real high stakes insurance experiment with small probabilities of losses, we demonstrate that concern is a more important driver of WTP for insurance than subjective probability estimates when there is ambiguity surrounding the estimate. Concern is still important when probabilities are exactly given. It also helps explaining the low probability insurance puzzle well known from the literature, where a part of individuals pays too much and a part nothing for coverage, a result we are able to replicate. In our experiment, belonging to either the group of threshold persons or to those that pay far too much, is not related to probability judgments but to the degree an individual is concerned in our decision situation. --

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,23.

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Date of creation: 2000
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Handle: RePEc:zbw:sfb373:200023

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  1. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 27-49, January.
  2. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 27-41, January.
  3. Knoblauch, Vicki, 2002. "An Easy Proof That a Square Lattice Is an Equilibrium for Spatial Competition in the Plane," Journal of Urban Economics, Elsevier, vol. 51(1), pages 46-53, January.
  4. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  5. Shaked, A, 1975. "Non-existence of Equilibrium for the Two-dimensional Three-firms Location Problem," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 51-56, January.
  6. Aoyagi, Masaki & Okabe, Atsuyuki, 1993. "Spatial competition of firms in a two-dimensional bounded market," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 259-289, April.
  7. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  8. Shaked, A, 1982. "Existence and Computation of Mixed Strategy Nash Equilibrium for 3-Firms Location Problem," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 93-96, September.
  9. Simon, Leo K, 1987. "Games with Discontinuous Payoffs," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 569-97, October.
  10. A Okabe & A Suzuki, 1987. "Stability of spatial competition for a large number of firms on a bounded two-dimensional space," Environment and Planning A, Pion Ltd, London, vol. 19(8), pages 1067-1082, August.
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Cited by:
  1. Steffen Huck & Kai A. Konrad & Wieland Müller, 2005. "Merger without Cost Advantages," CESifo Working Paper Series 1461, CESifo Group Munich.
  2. Daniel Strobach, 2006. "Competition between airports with an application to the state of Baden-Württemberg," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 272/2006, Department of Economics, University of Hohenheim, Germany.
  3. Dimitrios Xefteris & Nicholas Ziros, 2014. "A Spatial Model of Perfect Competition," University of Cyprus Working Papers in Economics 05-2014, University of Cyprus Department of Economics.

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