We present experimental evidence on the effectiveness of corporate leniency programs. Different from other leniency experiments, ours allows subjects to have free-form communication. We do not find much of an effect of leniency programs. Leniency does not deter cartels. It only defers them. Free-form communication allows subjects to build trust and resolve conflicts. Reporting and defection rates are low, especially when compared to experiments with restricted communication. Indeed, communication is so effective that, with leniency, prices are not affected if cartels are fined and cease to exist.
This version: September 28, 2020.
Joint work with Dominic Hauck
We propose a solution concept for games that are played among hyperbolic discounters that are possibly naive about their own, or about their opponent’s future time inconsistency. Our perception-perfect outcome essentially requires each player to take an action consistent with the subgame perfect equilibrium, given her perceptions concerning future types, and under the assumption that other present and future players have the same perceptions. Applications include a common pool problem and Rubinstein bargaining. When players are naive about their own time consistency and sophisticated about their opponent’s, the common pool problem is exacerbated, and Rubinstein bargaining breaks down completely.
This version: May 31, 2019.
Joint work with Wim Siekman.
We study retention offers, the practice that firms lower prices to consumers that want to cancel their contract. In a two-period Hotelling model, consumers have either low or high switching costs. In the second period, firms try to poach consumers. Consumers with a poaching offer can solicit a retention offer from their original supplier. In equilibrium, only low switching costs go though the effort of obtaining a poaching offer. Hence, retention offers serve as a mechanism to price discriminate against high switching cost consumers. In our model, the possibility of retention offers increases prices and profits. Consumer surplus decreases.
This version: March 7, 2016.