Opportunities of Cross-fertilization between law and experimental economics

Morell, Alexander

In Chapter II we investigate consumer behavior when facing target rebates, a rebate practice challenged by antitrust law. In three experiments, we confirm the hypothesis derived from Cumulative Prospect Theory (CPT), that target rebates are likely to create psychological switching costs that can make target rebates a tool dominant firms can use to inefficiently foreclose markets. In an experiment reported in Chapter III I confirm that guilt aversion, i.e., a preference to fulfill other people’s expectations, plays out stronger if agents are socially close. The hypothesis was triggered by legal intuition but can also be derived from psychological theory and seems to structure the previous literature on guilt aversion well. The cautious ingroup-outgroup manipulation that generates the result makes allows the presumption that the effect is way stronger in the field where relationships rest on friendship, family ties or co-workership. In Chapter IV we study how intra-team conflict and knowledge thereof influence inter-team competition. We model intra-team conflict (hereafter: “conflict”) by connecting a team’s pricing decision to the intra-team profit division. Inter-team competition is modeled as a Bertrand duopoly with homogeneous goods. We vary market composition (two conflict-teams, one conflict-team and one no-conflict-team, two no-conflict teams) and the availability of information regarding conflict of the other team (hereafter: “information”). We find that (1) prices are higher in homogenous markets of conflict-teams than in homogeneous markets of no-conflict teams. (2) With information, prices in heterogeneous markets are as low as in homogenous markets of no-conflict teams. (3) Without information on the other team’s conflict, prices in heterogeneous markets are as high as in homogenous markets of conflict-teams. (4) Information on the other team’s conflict leads to higher prices in homogeneous markets but to lower prices in heterogeneous markets.

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Morell, Alexander: Opportunities of Cross-fertilization between law and experimental economics. 2015.

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