The Limited Liability Effect in Experimental Duopoly Markets

Brander and Lewis argue in a seminal paper (AER, 1986) that a firm's debt-equity ratio should have important strategic effects on product market competition. We test their model in a duopoly experiment under both, Bertrand and Cournot competition. We find that leverage has strategic effects, but those effects are much weaker than predicted by theory. Specifically, we find for price competition a general tendency towards collusion, which has the same overall consequences - but deviates from - the subgame perfect equilibrium prediction. With quantity competition subjects choose much less debt than predicted by theory. It appears that subjects recognize the strategic effects of their own debt. However, they do not (want to) acknowledge possible strategic advantages of opponents' debt.oligopoly, bankruptcy, debt-equity ratio

Relaxed freshness in component authentication

We suggests a relaxed freshness paradigm for challenge-response authentication for each field of application where challenger and responder are tightly coupled and authentication takes place in a friendly environment. Replay attacks are not feasible under this premise, and freshness can be relaxed to relative freshness: no refresh is required as long as all previously tested responders were authentic. One field of application is anti-counterfeiting of electronic device components. The main contribution is a formal security proof of an authentication scheme with choked refresh. A practical implication is the lifetime increase of stored challenge-response-pairs. This is a considerable advantage for solutions based on hardware intrinsic security. For solutions based on symmetric keys, it opens the possibility to use challenge-response-pairs instead of secret keys by the challenger – a cheap way to reduce the risk of key disclosure