Shared Experience as Incentive for Horizontal Integration in Business Simulations

Abstract

We put forth a shared-experience algorithm for business simulations that effects an endogenous incentive to horizontal integration, a merger or acquisition involving two directly competing firms. We propose a measure of integration, and report on the degree of integration in a 357-period simulation exercise involving GEO, an Internet-based, computer-assisted simulation that incorporates the algorithm. At the end of the exercise, the degree of horizontal integration was significantly greater than would be expected from chance. The data did not suffice to determine if the result was a particular response to the endogenous incentive of the algorithm or a general response to other incentives for integration that may have been present. We argue for incorporating an endogenous integration incentive in strategic management simulations even if they should be administered for the typical length of about a dozen periods.