Market Interaction and Efficient Cooperation

Abstract

We experimentally study causal effects of competitive experience in markets with a short and a long side on efficiency levels attained in a subsequent social dilemma. We find that market experience affects efficiency when traders previously competed in the same market on the same side. The effect is strong for market-loser pairs and also exists for market-winner pairs, albeit to a lesser extent. Cooperation efficiency is unaffected for pairs consisting of a market-winner and a market-loser. When traders did not interact on the same market before, efficiency of cooperation is higher for market-winner pairs, but only in the short run.

Keywords: competitive market, social dilemma, experiment

JEL Classification: A13, C92, D30, D60