Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

Anderson, Lisa R.; Freeborn, Beth A.; Hulbert, Jason P.

doi:10.1007/s11151-011-9330-8

Cited by 10 publications

(6 citation statements)

References 24 publications

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“…Wambach [38] and Cheng [39] study a Bertrand game with cost uncertainty and risk averse firms and find that a risk-averse firm will charge a price higher than the competitive price. Anderson et al [40] explore the relationship between subject-specific risk tolerance and tacit collusion in Bertrand duopoly experiments and find that less risk-averse subjects charge price higher than do their more risk-averse counterparts, but this relationship is only significant when actions are strategic substitutes. All of these researches focused on the Bertrand game with bounded rationality or risk aversion.…”

Section: Literature Reviewmentioning

confidence: 99%

Bertrand Game with Nash Bargaining Fairness Concern

Tan

2019

Complexity

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The classical Bertrand game is assumed that players are perfectly rational. However, many empirical researches indicate that people have bounded rational behavior with fairness concern, which is important in the two-person game and has attracted much attention. In this paper, fairness concern is incorporated into the Bertrand game with two homogeneous products and the effect of fairness concern on this extended Bertrand game is explored. Nash bargaining solution of player is applied to be his own fairness reference point. Then, a Bertrand game model with fairness concern is established, and its equilibrium price is also derived and analyzed. It is shown from some numerical examples that fairness concern and bargaining power of players have a significant influence on their equilibrium price, expected profits, and utilities. As a player gets more fair-minded, if the other player has a less focus on fairness, the price competition between them will be intensified and both of them suffer loss. Thus, fairness concern may be advantageous or disadvantageous for players. In most situations, the fairness concern behavior is not beneficial for players. Additionally, the effect of bargaining power is relative to fairness concern. A player who manufactures a low-cost product should have a weak bargaining power if he terribly focuses on fairness and should have a strong bargaining power if he pays little attention to fairness. However, a player who manufactures a high-cost product should have a weak bargaining power if he is rarely concerned about fairness. Anyway, the same bargaining power is the best for two players.

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Section: Literature Reviewmentioning

confidence: 99%

Bertrand Game with Nash Bargaining Fairness Concern

Tan

2019

Complexity

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“…To measure the risk preferences of the participants, we followed Holt and Laury (2002), whose HL task is referred to as the "gold standard" of risk preference measurement methods (cf. Anderson et al 2012). In the HL task, participants chose between two different lottery pairs: lottery A and lottery B.…”

Section: Holt and Laury Taskmentioning

confidence: 99%

What is your discount rate? Experimental evidence of foresters’ risk and time preferences

Sauter

Mußhoff

2018

Annals of Forest Science

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• Key message The elicited time preference rate of German foresters is around 4.1%. Foresters working for private enterprises are more risk-averse and have a lower time preference than other foresters. This group difference should be taken into account for modeling and policy making. • Context Due to very long rotations, forestry investment calculations heavily depend on the underlying discount rate. There is an ongoing debate about the appropriate discount rate to apply in forestry, particularly in light of concerns regarding intergenerational justice, forest risks, and the provision of future positive externalities from forestry. For sound policy making however, knowledge is lacking on the risk and time preferences of foresters. • Aims The present study aims to provide detailed information about risk and time preferences as essential aspects of the discounting behavior. • Methods Therefore, we conducted an economic experiment with 142 German foresters. Both risk and time preferences affect discounting behavior, which is why they are estimated jointly but analyzed specifically. • Results Participating foresters' risk attitudes range between risk-neutral and very risk-averse, where the sample can be mostly characterized as risk-averse. Time preference discount rates range mostly between 0 and 7%, with 4.1% as a central value. These results are group-specific: foresters working for a private forest enterprise are more risk-averse and have a lower discount rate than other participating foresters. • Conclusion Foresters' time preferences exceed the usual rates of return in German forestry, which might be explained by additional utility attributed to forest amenity values or the risk-decreasing effects of forest assets in their portfolio.

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“…In this respect, we synthesize the conceptual and empirical literatures on reference prices, the latitude or price acceptance, and price fairness. 5 This has great practical importance for the design of discriminatory pricing platforms as sellers will have a better sense of "how much" prices may vary among buyers before the system is likely to collapse.…”

Section: Introductionmentioning

confidence: 99%

Personalized pricing and price fairness

Richards

Liaukonytė

Streletskaya

2016

International Journal of Industrial Organization

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Mobile web technology enables discriminatory, or personalized, pricing for many more consumer good categories than has traditionally been the case. Setting prices according to individual valuations, however, generates adverse consumer reaction unless consumers are invited to participate in the price-formation process. Consumer perceptions of price fairness are key to the sustainability of any discriminatory pricing regime. Perceptions of price fairness, in turn, are hypothesized to be shaped by "self-interested inequity aversion" in which prices tend to be regarded as unfair, and purchase probabilities fall, if others are perceived to pay a lower price, while prices tend to be regarded as more fair, and consumers more likely to purchase, if inequity is in the buyers favor. Our experimental data also shows that the implications of inequity aversion for sellers can be at least partially reversed if consumers are allowed to participate in the price-formation process by negotiating the price they pay. The primary implication of our …ndings is that, in order to be viable, any system of discriminatory pricing for consumer goods should invite consumers to have a stake in the price they pay. Such participatory pricing may provide one way out of the current trap of Hi-Lo, or promotional, pricing that neither retailers nor manufacturers regard as sustainable.

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Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

Cited by 10 publications

References 24 publications

Bertrand Game with Nash Bargaining Fairness Concern

Bertrand Game with Nash Bargaining Fairness Concern

What is your discount rate? Experimental evidence of foresters’ risk and time preferences

Personalized pricing and price fairness

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