‘Boycott. A stylised experiment on tax avoidance and empowered consumers’

The CCP seminar series continues on Friday 4th April with the ever-engaging Enrique Fatas (CCP and UEA School of Economics) presenting his research on ‘Boycott. A stylised experiment on tax avoidance and empowered consumers‘ which he has undertaken with Antonio J Morales (University of Malaga) and Axel Sontag (UEA). An abstract for their paper can be found below.

Abstract

We analyse consumer boycotts in a stylised experimental setting: firms post prices of an homogeneous product and consumers make shopping decisions. Relative to previous experimental studies of Bertrand games, this paper introduces three main changes: participants make decisions in both sides of the market; firms and consumer gets very limited information about the precise objective function of the other participants; and exchanges are taxed in a strongly asymmetric way, as firms may unilaterally refrain from paying taxes using a simple and private tax avoidance scheme. Tax avoidance automatically passes the burden of the unpaid taxes to the other agents. Boycotts are neither suggested nor mentioned in the description of the experimental game, but consumers may still unilaterally boycott firms. Boycotts come at a significant individual cost, and communication between consumers to coordinate the boycott is not permitted. Moreover, the experiment takes place in the usual private, anonymous and computerised environment. We manipulate both the level of competition in the market and the information consumers get about firms’ behaviour. Our results show that consumers boycotts are particularly difficult to sustain in this demanding setting. However, small boycotts go a long way, as firms significantly react to the signals sent by consumers, severely reducing tax avoidance.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 0.1.