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Bargaining under ambiguity: some experimental evidence

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Author Info
Hammad Siddiqi () (Lahore University of Management Sciences)

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Abstract

This paper investigates the price behavior in an experimental market in which participants are only aware of their own private values and do not possess information about the demand and supply curves, hence face ambiguity. The paper finds that when demand is flatter (more elastic) than the supply curve in price-quantity space then price approaches equilibrium from below, that is, all trades initially occur below the equilibrium price. However, if demand is steeper (less elastic) than supply, then the equilibrium price is reached from above. A simple rationale for this result is that in the first round of trading, participants tend to split the surplus from trading evenly among themselves since they are unaware of the equilibrium price. However, in subsequent rounds price quickly converges to the equilibrium as the equilibrium is discovered through repeated interactions.

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File URL: http://economicsbulletin.vanderbilt.edu/2006/volume4/EB-06D80002A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 4 (2006)
Issue (Month): 7 ()
Pages: 1-7
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Handle: RePEc:ebl:ecbull:v:4:y:2006:i:7:p:1-7

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Related research
Keywords: Ambiguity; Bargaining; Demand Elasticity; IPO Underpricing;

Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
D0 - Microeconomics - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Ritter, Jay R., 2003. "Investment banking and securities issuance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 5, pages 255-306 Elsevier. [Downloadable!] (restricted)
  2. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September. [Downloadable!] (restricted)
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This page was last updated on 2009-12-12.

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