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Information and Competition Entry

Author

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  • Ewers, Mara

    () (Institut der deutschen Wirtschaft Köln (IW))

Abstract

This paper studies the influence of information on entry choices in a competition with a controlled laboratory experiment. We investigate whether information provision attracts mainly high productivity individuals and reduces competition failure, where competition failure occurs when a subject loses the competition because the opponent holds a higher productivity. Information on the opponent is a promising nudge to raise individuals' awareness towards the complexity of the decision problem and to update beliefs about success. In the experiment, subjects face the choice between a competition game and a safe outside option. We analyze subjects' entry behavior with a benchmark treatment without information and three treatments, where we exogenously manipulate the information on the opponents. Our results are, (1) information on the productivity distribution of all potential opponents reduces competition failures by more than 50%, (2) information on the distribution is sufficient, i.e. precise information on the matched opponent's type does not further diminish failure rates.

Suggested Citation

  • Ewers, Mara, 2012. "Information and Competition Entry," IZA Discussion Papers 6411, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6411
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    References listed on IDEAS

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    1. Bjorn Bartling & Ernst Fehr & Michel Andre Marechal & Daniel Schunk, 2009. "Egalitarianism and Competitiveness," American Economic Review, American Economic Association, vol. 99(2), pages 93-98, May.
    2. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1067-1101.
    3. Koellinger, Philipp & Minniti, Maria & Schade, Christian, 2007. ""I think I can, I think I can": Overconfidence and entrepreneurial behavior," Journal of Economic Psychology, Elsevier, vol. 28(4), pages 502-527, August.
    4. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    5. Mara Ewers & Florian Zimmermann, 2015. "Image And Misreporting," Journal of the European Economic Association, European Economic Association, vol. 13(2), pages 363-380, April.
    6. Baldwin,John R. & Gorecki,Paul, 1998. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521633574, January.
    7. Burks, Stephen V. & Carpenter, Jeffrey P. & Götte, Lorenz & Rustichini, Aldo, 2010. "Overconfidence is a Social Signaling Bias," IZA Discussion Papers 4840, Institute for the Study of Labor (IZA).
    8. Reuben, Ernesto & Rey-Biel, Pedro & Sapienza, Paola & Zingales, Luigi, 2012. "The emergence of male leadership in competitive environments," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 111-117.
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    Cited by:

    1. Murad, Zahra, 2016. "Does group discussion lead to better informed and more strategic market entry decisions?," Economics Letters, Elsevier, vol. 144(C), pages 25-28.

    More about this item

    Keywords

    competition; experiment; information; overconfidence; self-assessment; self-selection; tournament;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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