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Does the Fundamental Transformation Deter Trade? An Experiment
- Publication Year :
- 2022
- Publisher :
- Open Science Framework, 2022.
-
Abstract
- Oliver Williamson has coined the term "fundamental transformation". It captures the following situation: before they strike a deal, buyer and seller are protected by competition. Yet thereafter they find themselves in a bilateral monopoly. With common knowledge of standard preferences, both sides conclude the contract regardless if its expected value exceeds their outside options. We run an experiment to test whether additional behavioral reasons deter mutually beneficial trade. If the risk materializes, another individual makes a windfall profit. She does so by intentionally exploiting the first individual. The first individual is let down, although she has knowingly exposed herself to this risk. Participants sell the opportunity to enter the contractual relationship at a price below its expected value. This effect is driven by risk aversion, and already present if the risk is stochastic. Behavioral effects are heterogeneous. About a quarter of participants exhibit the hypothesized additional deterrent effect.
- Subjects :
- Williamson
B21 - Microeconomics
L14 - Transactional Relationships
Contracts and Reputation
Networks
K12 - Contract Law
L12 - Monopoly
Monopolization Strategies
FOS: Law
Fundamental Transformation
C91 - Laboratory, Individual Behavior
Social and Behavioral Sciences
Oliver Williamson
windfall profit
Experiment
sunk cost
let down aversion
C91
ddc:330
L12
L14
fundamental transformation
K12
D43 - Oligopoly and Other Forms of Market Imperfection
bilateral monopoly
Empirical Analysis [D22 - Firm Behavior]
B21
Law
D43
exploitation
D22
Subjects
Details
- Database :
- OpenAIRE
- Accession number :
- edsair.doi.dedup.....560cbb6db7220b28f066346bd944f0ac
- Full Text :
- https://doi.org/10.17605/osf.io/53zyn