research

Work-in progress

Draft of papers are available upon request.

First-order stochastic dominance violations, framing effects and risk preferences (experiment)

Abstract: This paper experimentally investigates whether decision-makers’ violations of the first-order stochastic dominance (FSD) criterion of rational choice, as documented in previous studies, are correlated with their risk preferences. As argued in the literature, FSD violations require framing effects to affect individual’s decisions: the frame of the lotteries in an individual’s choice set must prevent the individual from the inferiority of choosing stochastically dominated lotteries. This paper moves a step ahead by investigating whether (consistent or erratic) risk averse or risk seeking attitudes towards uncertainty make individuals more or less receptive to the framing effects which can induce FSD violations. Our main finding is that consistent (and, to a minor extent, “erratic”) risk seeking individuals are statistically significantly more prone to violate the FSD criterion in their choices than individuals exhibiting different risk attitudes (i.e., consistent risk averse and systematically inconsistent risk taking individuals). We finally control for the role of the framing effects in our results. Consistently with the previous literature, we find that the framing effects play a crucial role. As we re-frame lotteries in such a way to make the FSD superior prospects more easily distinguishable, any participants hardly violates the FSD criterion, irrespective of their risk preferences, gender and exerted cognitive abilities.

Strategic delay of product introductions

(with Dr Subir Bose and Piercarlo Zanchettin)

Abstract: We consider a durable goods monopolist’s optimal timing for a new product introduction with finite economic life. Within the product life, production technology can evolve, offering lower unit production costs in the later stages. The focus is to contrast the first-best socially optimal timing with which the product will be served to different types of consumers, with the profit-maximising market strategy of the monopolist, the latter being negatively affected by asymmetric information on the consumer types. First, we assume that the monopolist can perfectly commit to inter-temporal price offers for the product announced at the outset. More specifically, the monopolist can commit not to make any additional price offer in the future. Provided that future production cost savings are sufficiently high, the monopolist may optimally resort to intertemporal price discrimination by “over-delaying” (relative to the first-best solution) the consumption of the low-type consumers. On the contrary, monopolistic over-delay of the consumption of high-type consumers can never occur under full commitment. Second, we assume that the monopolist cannot commit not to make future price offers after having made an initial announcement of intertemporal prices. The inability to commit generates a standard Coase durable monopolist problem. We show that, in our setting, when the future production cost saving is sufficiently (but not too much) high, the monopoly equilibrium can exhibit two distortions: the consumption of the high-type consumers is over-delayed relative to the first best, and the low-type consumers stop participating to the market, while they would be served at the late stage of the product life in the first-best solution.

Green Unbundling and Market Entry: Environmental Strategy in Complementary Goods Markets

Abstract: This paper examines the strategic unbundling of complementary goods by an incumbent firm operating under environmental externalities, using recent decisions by Apple and Samsung to exclude chargers from smartphone packages as a motivating example. Challenging the conventional view that bundling deters entry in complementary goods markets, we show that incumbents may instead find it optimal to unbundle products to enhance their environmental reputation while accommodating entry. We develop a game-theoretic model of a two-good complementary market in which production generates environmental harm, internalised through Pigouvian taxes. Consumers differ in both their valuation of consuming the goods jointly and their pre-existing ownership of one component. Our analysis shows that when all firms are subject to the same environmental regulation, mixed bundling is the profit-maximising strategy and aligns with the first-best social welfare outcome. However, when low-cost entrants operate from jurisdictions without equivalent environmental regulation, the incumbent has incentive to unbundle, accommodate such entry, and reduce its own emissions by ceasing production of the complementary good. While this strategy may lower the firm’s reported environmental footprint, it leads to greater global environmental damage as imports escape regulation. We quantify this trade-off and assess policy interventions, such as border-adjusted carbon taxes and alternative tax schemes, that can better align private incentives with global welfare in the presence of regulatory asymmetries.