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Is a firm a firm? A Stackelberg experiment

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  • Hildenbrand, Andreas

Abstract

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.

Suggested Citation

  • Hildenbrand, Andreas, 2013. "Is a firm a firm? A Stackelberg experiment," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-26.
    • Handle: RePEc:zbw:ifweej:201320
    DOI: 10.5018/economics-ejournal.ja.2013-20
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    More about this item

    Keywords

    industrial organization; Stackelberg game; individual behavior; team behavior; framing; experimental economics;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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