Voluntary agreements between competitors: trick or truth?

Abstract

Voluntary agreements in which competitors commit to common goals are important tools for corporate social responsibility. After entering into a commitment, however, competitors often have incentives to behave opportunistically. This is possible because voluntary agreements are not enforced by external sanctions. We present the results of an exploratory laboratory experiment that investigates the behavior of competitors engaging in commitments and consequently the effectiveness of such measures. We find that introducing a publicly visible commitment device that is implemented with a low probability mitigated conflict between competitors substantially. Our results show that subjects’ inclination to defect one another after competition was mainly driven by the opponents’ refusal to enter into a commitment. In our experiment, a commitment was not used to trick the competitor into a false sense of security but rather to convey the truth about subjects’ moral behavior. We conclude that the efforts of (non-)governmental institutions to reinforce trust between competitors may be of substantial value.