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Partners or rivals? An experimental study of a two-stage tournament

Hong Chao, Chun-Yu Ho (), Shaoqing Huang, Xiangdong Qin and Jiajia Cong

Journal of Economic Behavior & Organization, 2019, vol. 158, issue C, 288-310

Abstract: We consider a two-stage tournament in which two alliances compete in stage one. Members of the winning alliance then compete against each other in stage two. Members’ investment in stage one could increase their alliance's winning probability, but could also be appropriated and used against them by their partners-turned-rivals in stage two. This hold-up problem creates a negative incentive for within-alliance cooperation. We test this theoretical benchmark in an experiment. In a second experiment, we investigate whether ex-ante informal agreements deter appropriation. We find that such agreements are honored, and thus encourage investments, only under the fixed matching condition.

Keywords: Two-stage tournament; Alliance; Hold-up problem; Appropriation; Informal agreement (search for similar items in EconPapers)
JEL-codes: C92 D74 D82 D83 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jebo.2018.11.023

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