1. Who makes the pie bigger? An experimental cross country study into coopetition Simposio de Análisis Económico, Zaragoza December 11, 2008 Juan Antonio Lacomba (University of Granada) Francisco Lagos (University of Granada) Tibor Neugebauer (University of Luxembourg)

2. 1 Introduction : "Business is WAR“? Business is traditionally viewed as a win-lose game where all players are competitors. Business can be a win-win game when firms cooperate. “Co-opetition” (Nalebuff and Brandenburger 1996) involves both aspects of business: how to make a bigger pie, as well as get a bigger share of the pie.

3. 1 Introduction: The game of co-opetition The game of co-opetition is complicated as frequently the short-term perspective of a consortium is at conflict with its long-term perspective. Firms may find it more comfortable to cooperate with another firm when the other one competes in a different market or at least, from the standpoint of today, it is unforeseeable that the other one is the future competitor. The game of co-opetition can be played with the complementor as well as with the competitor. Co-opetition is a wide-spread phenomenon –Collaborators who cooperate today in a team within an organization frequently compete tomorrow in the promotion for a higher position.

4. 2 Experimental design: two-stage game The game of co-opetition is a two stage game in which the player who creates the bigger pie-share in the first stage wins the right to divide the whole pie –First stage: ambigously repeated prisoner’s dilemma (Loos and Neugebauer 2007) –Second stage: dictator game (Foresythe et al 1994)

5. 2 Experimental design: 3 Treatments 1.Unrelation (PD + ?) –subjects were told that they were going to receive further instructions after the prisoner’s dilemma. 2.Competition (PD + dictator game with the partner) –at the beginning of the experiment, subjects were informed that if they earned a higher payoff than their partner in the prisoner’s dilemma they would win the right to be the dictator in the pie-sharing task. 3.Complementation (PD + dictator game with a stranger) –subjects were a priori informed that their cumulative payoffs in the prisoner’s dilemma game would be pooled with the cumulative payoffs of someone else with whom they had not interacted before. The one who earned a higher payoff in the prisoner’s dilemma would be entitled to be the dictator in the pie-sharing task.

6. 2 Experimental procedures 132 subjects participated in the experiment: 62 participants in Hannover and 72 participants in Granada. –In Hofstede (1991) Germany is ranked higher than Spain on both his Individualism/Collectivism index and his Long/Short term orientation index 12 periods + three interactive trials without payment. Announced number of repetitions; minimum 10, maximum 20 8.87 + 3 Euro average payoff (12 Euro maximum) / half an hour Computerized with zTree (Fischbacher 2007) Double blind procedure

7. 3 Theoretical considerations We consider only the decisions in the prisoner’s dilemma and neglect the decisions of the dictator game. Hypothesis 1: Subjects always play defection disregarding the treatment. Hypothesis 2: The cooperation levels in the Competition treatment are lower than in the Uninformed and the Complementation treatment. Hypothesis 3: There are no differences between German subjects’ behaviour and Spanish subjects’ behaviour regardless the treatment Hypothesis 4: German subjects are expected to show a higher cooperative behaviour than Spanish subjects regardless the treatment.

8. 4 Experimental results Table 2. Average cooperation rate Observation 1: Cooperation levels in the Uninformed and the Complementation treatment are greater than in the Competition treatment. This evidence supports hypothesis 2 and rejects hypothesis 1. Treatment UnrelationCompetitionComplementation Total Sample 0.4790.1700.381 Germany 0.6250.2850.511 Spain 0.3330.0750.283 Difference 0.2980.2100.228

9. 4 Experimental results Average cooperation rate Observation 2: Cooperation levels in Germany are significantly greater than in Spain in all treatments. This observation supports hypothesis 4 and rejects hypothesis 3.

10. 4 Experimental results Behavioral Pattern Treatment UnrelationCompetitionComplementation Germanycooperate at least once 1.000.700.944 cooperate always.333.100.222 defect always.000.300.056 Spaincooperate at least once.717.375.583 cooperate always.167.000.167 defect always.283.625.417

11. 5 Concluding remarks Two main results emerge from our analysis. –First, when in an initial stage paired subjects should cooperate to make the bigger pie and thus face with higher warranties of success the immediate future, the behavior is ambiguous. To observe higher cooperation levels between partners it seems crucial that your pair is not you competitor further. Our data suggest that promoting internal competition could have harmful effects. Agents could focus on the competitive side and miss the cooperative one. –Second, the cultural traits seem to play a very important role when deciding between cooperation and competition. German subjects exhibit a level of cooperation significantly higher than Spanish subjects.