<Instructions for experiment>
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General instruction
This is an experiment in economic decision-making in a market. In the experiment, you will be grouped with three other participants. Each group indicates a market consisting of two firms, A and B. Each firm has one owner and one manager. You will have a role of either an owner or a manager in a firm. Every period each participant is newly matched with new participants and has a new role. For example, you can be an owner of firm A in period 1 but you may be a manager of firm B in period 2. The experiment consists of 16 periods in total. During the experiment, you will not be able to know other participants' roles. The other participants will not also be able to gain the information about you.
Your earnings today will be determined by your choices. If you follow instructions carefully and make good decisions, you can earn a considerable amount of money. The currency used in the experiment is the ECU, Experimental Currency Unit. In the periods that you are an owner, 1,000 ECU are worth 1 dollar. In the periods that you are a manager, 100 ECU are worth 1 dollar. The ECU at the end of session will be converted to dollars. In addition, you receive a show-up fee for completing the experiment.
Each period consists of two or three stages.
In the first stage of each period, the participants who have a role of an owner in a company within a market can select one among two strategies P and R. The strategy that you select affects not only your earnings but also your manager's earnings. At the end of the first phase in each period, there is an announcement to all participants about what strategies are chosen by owners.
In the second stage, managers have a chance to communicate with each other for one minute. Then, each manager choose (i) to join a market agreement (A) or (ii) not to join it (B). Depending on managers' choices, owners' and managers' earnings are decided.
The third stage is conditionally given to managers in the only case that both managers decide to join a market agreement in the second phase (A and A are chosen). Then, each manager selects (i) to report a market agreement (Y) or (ii) not to report it (X). This third phase decides owners' and managers' fine.
| Stage | Decision-makers | What should participants select in each stage? |
When is each stage given to decision-makers? |
What do the decisions in each stage affect? |
| 1 | Owners | One between P and R | Every period | Earnings |
| 2 | Managers | One between A and B | Every period | Earnings |
| 3 | Managers | One between X and Y | Only if both managers select A at stage 2 (A and A are chosen at stage 2) |
Fine |