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Is a firm a firm? A Stackelberg experiment

  • Hildenbrand, Andreas

Industrial organization is mainly concerned with the behavior of large firms, especially when it comes to oligopoly theory. Experimental industrial organization, therefore, faces a problem: How can firms be brought into the laboratory? The main approach relies on framing: Call individuals 'firms'! This experimental approach is not in line with modern industrial organization, according to which a firm's market behavior is also determined by its organizational structure. In this paper, a Stackelberg experiment is considered in order to answer the question whether framing individual decision making as firm decision making or implementing an organizational structure is more effective for generating profit-maximizing behavior. Firms are either represented by individuals or by teams. Teams are organized according to a parsimonious version of Alchian and Demsetz's (Production, Information Costs, and Economic Organization, 1972) contractual model of the firm. The author finds teams' quantity choices are more in line with the assumption of profit maximization than individuals' choices. Compared to individuals, teams appear to be less inequality averse.

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2013-20
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File URL: http://econstor.eu/bitstream/10419/73464/1/745745407.pdf
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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 7 (2013)
Issue (Month): ()
Pages: 1-26

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Handle: RePEc:zbw:ifweej:201320
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  1. Normann, Hans-Theo & Ruffle, Bradley, 2011. "Introduction to the special issue on experiments in industrial organization," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 1-3, January.
  2. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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