Microenterprise competition, social pressures, and innovation
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What is the nature of competition amongst densely-located, largely similar microenterprises in the developing world? While standard theories of imperfect competition seem to rationalise a number of features of such markets, there is reason to believe that there may be additional social tensions at play. To make initial progress on these issues we conduct a framed lab-in-field experiment in Indonesia, recruiting peri-urban market participants to participate in a series of market games framed to match the real-world setting. We study both the ‘intensive margin’ (play within a market with a fixed set of two participants) and the ‘extensive margin’ (markets where individuals can choose to enter and exit). What we find is mixed: while a number of features of the results are consistent with purely self-regarding play, other features suggest additional social and strategic tensions. Subsequent analysis further suggests important heterogeneity in behaviour within the population.
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