Demand uncertainty in skill-based competition

Sabrina Artinger

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: How does demand uncertainty affect entry into skill-based competition? I investigate this question in a market entry experiment with skill-based payoffs by systematically varying two key elements of the market environment: demand risk and expected market size. Results show that people's reactions to demand risk depend on the market size: in small markets people enter more when demand is risky, in large markets they enter less when demand is risky. This leads to substantial inefficiencies in both cases: demand risk significantly amplifies overentry in small markets and underentry in large markets. Skill and confidence have strong main effects but do not moderate reactions to demand risk or market size. This result has important implications for market design and regulation.

JEL-codes: D03 D23 D80 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-exp
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