Dictator monopolies and essential goods: experimental evidence

Abstract

Monopolists set prices and if the good is unessential this may place the consumer in an uncomfortable position. But if the good is essential the consumer faces a pay-to-live or -die choice. Dictator and ultimatum games are superficially similar in that one game offers the right of refusal, while the other does not. The dictator monopoly is, however, not a game, and behaviour could be radically different in the market environment versus game environment. We recast the dictator game as a dictator monopoly experiment and find that the fairness characteristic of the game evaporates quickly as rounds progress.

Keywords:

• dictator
• monopoly
• essential goods
• experiments

JEL Classification:

• D42
• L12
• C92

Acknowledgements

We gratefully acknowledge helpful comments and discussion from Gary Charness, Elizabeth Hoffman, Dan Houser, John Spraggon, Lester Zeager and Buhong Zheng and the research assistance of Eric Cao, Hannes Lang and Michelle Bongard. The article benefitted from the comments of participants at the Economic Science Association Meetings in Tucson and Washington, DC, Social Choice and Welfare Meetings in Boston and the Southern Economic Association in Washington, DC.

ORCID

Steven R. Beckman http://orcid.org/0000-0003-4120-6673

Notes

¹ According to Dr. Hagop Kantarjian ‘High cancer drug prices are harming patients because either you come up with the money, or you die’. 60 minutes interview broadcasted on 5 October 2014 is downloadable from http://www.cbsnews.com/news/cost-of-cancer-drugs-60-minutes-lesley-stahl-health-care/

² See articles in the Wall Street Journal, 15 November 2005, 16 November 2005, 1 December 2005 and 28 December 2005 by Geeta Anand. These articles are the source for Guacher’s disease as well. Downloaded from ProQuest, 21 November 2008.

³ $U={\left({(x_1-s_1)}^{\rho }+{(x_2-s_2)}^{\rho }\right)}^{\frac{1}{\rho }}$ where $s_i$ is the subsistence requirement for each of two goods, $x_i$, i = 1,2. Let $p_i\mathrm{a}\mathrm{n}\mathrm{d}y$ represent price and income. It is easily shown that the associated demand function is $x_i=\frac{\bar{y}{p}_i^{r-1}}{\sum _i{p}_i^r}+s_i$, where $\bar{y}=y-\sum _i{p}_i{s}_i$ and $r=\frac{\rho }{\rho -1}.$

⁴ We link the seller to a different buyer about half way through the experiment to see if social norms, other-regarding behaviour or philanthropy require some sort of gift to a contact that is new to a particular seller.

⁵ The instructions for the experiments in Denver and RPI are in the Appendix.

⁶ This is the RPI colour scheme. In Denver, the monopolist profit is yellow and the unclaimed consumer surplus is red. See the tutorial instructions for Denver.

⁷ The programme displays: ‘Enter the pay you want. This may range from $0 to $5.00’. Following the entry, the display reads: ‘Your pay will be_____ ’ [The subject’s entry is displayed]. ‘If this is not what you want, re-enter the number at left. If this is your final choice, press the button below’.

⁸ Points are converted to cash at the rate 1 point = $0.01 and all rounds are paid. Rounds are repeated to allow convergence to an equilibrium.

⁹ Buyers report higher levels of irritation, anger, envy and jealousy (p-values are 0.000, 0.000, 0.018, 0.000), whereas sellers report higher levels of happiness and joy (p-values are 0.000 and 0.001). The averages (by set) are reported in Table 2.