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Demand uncertainty in skill-based competition


  • Artinger, Sabrina


How does demand uncertainty affect entry into skill-based competition? I investigate this question in a market entry experiment with skill-based payoffs by systematically varying two key elements of the market environment: demand risk and expected market size. Results show that people's reactions to demand risk depend on the market size: in small markets people enter more when demand is risky, in large markets they enter less when demand is risky. This leads to substantial inefficiencies in both cases: demand risk significantly amplifies overentry in small markets and underentry in large markets. Skill and confidence have strong main effects but do not moderate reactions to demand risk or market size. This result has important implications for market design and regulation.

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  • Artinger, Sabrina, 2013. "Demand uncertainty in skill-based competition," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79962, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79962

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    References listed on IDEAS

    1. Craig R. Fox & Amos Tversky, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 585-603.
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    5. Natalia Karelaia & Robin Hogarth, 2010. "The attraction of uncertainty: Interactions between skill and levels of uncertainty in market-entry games," Journal of Risk and Uncertainty, Springer, vol. 41(2), pages 141-166, October.
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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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