Price Competition and Cooperation on Sustainable Investments

Last registered on November 18, 2023
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Pre-Trial

Trial Information

General Information

Title
Price Competition and Cooperation on Sustainable Investments
RCT ID
AEARCTR-0012490
Initial registration date
November 12, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
November 18, 2023, 6:06 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Name
Timothy Cason
Affiliation
Purdue University
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Other Primary Investigator(s)

PI Name
Frans de Vries
PI Affiliation
University of Aberdeen
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PI Name
Takahiko Kiso
PI Affiliation
University of Aberdeen
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Additional Trial Information

Status
In development
Start date
2023-11-13
End date
2024-05-03
Keywords
Behavior, Environment & Energy, Firms & Productivity, Lab
Additional Keywords
Competition Policy, Antitrust, Repeated Games, Bertrand, Market Experiment
JEL code(s)
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This lab experiment investigates how potential cooperation between firms on sustainable consumption and production (SCP) investments affects subsequent price competition. In an initial stage, duopolists make a binary sustainability investment decision (e.g., corresponding to waste and pollution reduction, energy efficiency technology adoption, etc.) that affects their costs. Investment also shifts demand, as some consumers value sustainability. In later stages firms set prices simultaneously in a sequence of indefinitely repeated rounds. To investigate how cooperation in SCP investment affects price competition, in some treatments the sellers can communicate in the investment stage. The experiment implements communication using free-form chat or more restrictive messages focused on the investment decision in different treatments. It also includes exogenous random variation in investment success. Treatments also vary costs and demand so that either investment or non-investment is a profit-maximizing strategy conditional on noncooperative pricing. The experiment also elicits subjects’ risk tolerance and social value orientation.
External Link(s)

Registration Citation

Citation
Cason, Timothy, Frans de Vries and Takahiko Kiso. 2023. "Price Competition and Cooperation on Sustainable Investments." AEA RCT Registry. November 18. https://doi.org/10.1257/rct.12490-1.0
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
Communication opportunities will be varied across treatments. This includes a no-communication baseline, and a treatment in which firms in the duopoly pair can exchange rich and free form (chat) messages before each sustainability investment decision. The experiment will also include a communication treatment with a more restrictive (binary) message space. The cost and demand impact of the sustainability investments will also be varied across treatments, which determines the profit and consumer surplus impact of investment.
Intervention Start Date
2023-11-13
Intervention End Date
2024-05-03

Primary Outcomes

Primary Outcomes (end points)
Investment rates
Price choices in different investment subgames
Firm Profits
Consumer Surplus
Total Welfare
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Communication content
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
This is a laboratory experiment, conducted in a standard university experimental economics lab, recruiting students broadly across the university. Subjects will be randomly assigned to a treatment, which is fixed throughout their experimental session. They will be randomly assigned to duopoly pairs to make investment and price choices. All subjects will be sellers, and demand for the differentiated products is computerized.
Each session will include 10 supergames, with random and anonymous re-pairing of sellers between supergames. Each supergame is repeated for an indefinite number of rounds, with a continuation probability of 7/8 each round. The experiment employs block random termination (4-round blocks). Prior to each set of 4 rounds, sellers will decide whether to make an investment decision, which affects their costs and the demand they face for these rounds. Investment only succeeds with 4/5 probability.
The combination of successful investments determines the payoff matrix for the pricing subgame that applies for the subsequent 4 rounds. Sellers chose simultaneously each round from a set of 8 possible prices. They receive feedback at the end of each round regarding the other seller’s investment and price choice, as well as their own earnings for the round. At the end of their session, subjects are paid for all rounds conducted prior to the supergames’ random termination.
Experimental Design Details
Not available
Randomization Method
Subjects will be recruited by email using ORSEE. They choose between a list of available sessions, and the session is randomized to a treatment before it is initialized.
Randomization Unit
Individual
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
20 independent matching groups, 12 sessions
Sample size: planned number of observations
320 individuals
Sample size (or number of clusters) by treatment arms
32 individuals in the chat communication X payoff treatments
64 individuals in each of the no communication and binary communication X payoff treatments
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
The proposed design can detect normalized effect sizes of 0.5 for the No Communication and Restrictive Communication treatments, and 0.62 normalized effect sizes for the Chat Communication treatment compared to the other two communication treatments. (All two-tailed tests, t-test mean comparison across individuals to detect with 80 percent power, five percent significance level.) These effect sizes were calibrated based on initial sessions – one session for each of the six treatments. Based on this calibration we can detect with this power differences in intended investment rates, and prices for the key subgames when both firms invest, or both firms do not invest, with one exception: The mean price difference between No Communication and Restrictive Communication when both firms invest.
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
Purdue University Institutional Review Board
IRB Approval Date
2019-03-22
IRB Approval Number
1802020293 and 1902021679
Analysis Plan