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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 organizational decision making or implementing an organizational structure is more effective in generating profit-maximizing behavior. Firms are either represented by individuals or by teams. Teams are organized according to Alchian and Demsetz's (1972) contractual view of the firm. I find that 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, 2012. "Is a "firm" a firm? A Stackelberg experiment," Economics Discussion Papers 2012-53, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201253
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    More about this item

    Keywords

    industrial organization; Stackelberg game; individual behaviour; team behaviour; 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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