This paper presents an industry equilibrium model where firms can choose to engage in corporate social responsibility (CSR) activities. We model CSR activities as an investment in customer loyalty and show that CSR decreases systematic risk. This e§ect is stronger for firms producing di§erentiated goods and when consumers’ expenditure share on CSR goods is small. We find supporting evidence for...

We study the impact of internal decision-making structures on the stability of collusive agreements. To this end, we use a three-firm spatial competition model where two firms belong to the same holding company. The holding company can decide to set prices itself or to delegate this decision to its local units. If collusion breaks down, the holding company may relocate its two local units. It t...

This paper introduces and studies the γ-core of a general strategic game. It shows that a prominent class of games admit nonempty γ-cores. It also shows that the γ-core payoff vectors (a cooperative solution concept) can be supported as equilibrium outcomes of a non-cooperative game and the grand coalition is the unique equilibrium outcome if and only if the γ-core is nonempty. As an applicatio...

This paper presents a theory of the market provision of broadcasting and uses it to address the nature of market failure in the industry. Equilibrium advertising levels may be too low or too high, depending on the nuisance cost to viewers, the substitutability of programs, and the expected benefits to advertisers from contacting viewers. The equilibrium amount of programming may also be below o...

A theory advanced in regulatory hearings holds that market performance will be improved if one side of themarket is forced to publicly reveal preferences. For example, wholesale electricity producers claim that retail electricity consumers would pay lower prices if wholesale public utility demand is disclosed to producers. Experimental markets studied here featured decentralized, privately nego...

In an overlapping generations model with Cournot competition on the goods market it is shown that a continuum of stationary states and perfect foresight trajectories exists with unemployment at arbitrary low wages. Decisive for this is the influence that different forecast functions have on the objective demand curve, even though they are consistent with perfect foresight. With an example it is...

We experimentally test the effect of sunk costs on decision making. In the experiment, subjects play the role of price–setting duopolists. Both firms have identical costs, including an exogenous sunk cost that varies across sessions over six different values. We observe that the sunk cost has a U–shaped effect: from low to medium levels, average prices decrease, but from medium to high levels, ...

We analyze a situation where a principal wants to induce two firms to produce an output, e.g. electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the...

I study how strategic alliances and their impact on future competitive incentives can motivate interfirm equity sales. In the model, an alliance between an entrepreneurial firm and an established firm improves efficiency for both. However, the requisite knowledge transfer heightens the established firm’s incentive to enter one of its partner’s markets. I show that equity can eliminate the entry...

We study the impact of strategic commitment on cooperation in indefinitely repeated games of strategic substitutes (Cournot) and complements (Bertrand) using laboratory experiments. Overall, strategic commitment has no effect on cooperation with strategic substitutes and a negative one with strategic complements. In the absence of strong strategic commitment, we find more cooperation in the com...