PhD defence: Bjørn-Atle Reme

On Thursday 6 June 2013 Bjørn-Atle Reme will hold a trial lecture on a prescribed topic, and defend his thesis for the PhD degree at NHH.

The first paper in the dissertation is a laboratory experiment that sheds light on the economic behavior of individuals (joint with Alexander W. Cappelen, Erik Ø. Sørensen and Bertil Tungodden). In particular, the study focuses on improving the understanding of what motivates individual economic behavior in a group setting. This is done using a public goods game - a social dilemma situation similar to the "tragedy of the commons". Social dilemmas are a central part of human interaction, on both a micro and macro level. Common to social dilemmas is the conflict between individual and collective objectives. No single individual can do much to save the environment or determine an election. It may therefore seem rational for an individual to refrain from choosing environmentally friendly solutions or voting, if doing so comes at a private cost. The sum of many such decisions is, however, not in accordance with the collective goal of the group.

In our paper we investigate how the presence of voluntary leadership and the level of leadership compensation affect the behavior of a group in a social dilemma. In a laboratory experiment, we find that leadership does matter for followers' behavior, but that leader compensation crowds out their moral motivation. This experiment also shows that most participants do not behave according to their narrow self-interest. They are conditional cooperators and would like to contribute to the public good, at a private cost, to the extent that they believe the other group members will do the same.

In the second paper I study a model where individuals and firms interact in a market. This study involves a combination of firm and individual behavior. The firms are modeled as rational profit maximizers, while the individuals are limited in their ability to implement their plan of action. In particular, the paper assumes that the consumers make imprecise assessments of product quality. Their tendency to make mistakes therefore limits their ability to choose the product that maximizes their utility. The market studied is one where there are adoption externalities between consumers.

Over the last few decades there has been an increasing focus on these types of markets for two reasons. First, when network externalities are present, there is a tendency for markets to become dominated by one supplier. Market dominance, and in particular the abuse of a dominant position, could potentially be harmful to consumers and market efficiency. Second, technological progress has created many more such markets as well as dominant providers like Apple's iPad, Facebook, eBay, YouTube, Microsoft Office and Microsoft Windows. In such markets early consumer choices have a disproportionate influence on the overall market outcome. Consumer mistakes are therefore more likely to significantly change firm behavior. The main focus of the paper is on how the competition between two producers offering different product qualities is affected by the consumers' lacking ability to correctly assess quality.

The third paper focuses on the interaction between firms. The model looks at the competition and cooperation among three profit-maximizing firms - a retailer and two suppliers. The role of the individuals as consumers has been reduced to a simple function of market demand. The firms share their joint surplus of market participation by means of negotiations. The paper uses the classical Nash-bargaining approach to bargaining. This approach has become the workhorse model due to its properties, simplicity and generality. Even though negotiation is widely used in vertical relations between firms, it has remained "the poor stepchild of competition analysis, largely unintegrated into the family of competition models commonly used to analyze mergers and business practices." (Raskovisch, 2007, p.1127). One of the reasons for this is that the outcome of negotiations is sensitive to many factors that can be hard for the modeler to account for. For instance the Nash-bargaining solution remains silent regarding the process of reaching an agreement, nor does it provide an understanding of negotiation break downs in situations where establishing a bilateral relationship would realize surplus.