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Fairness: Effect on Temporary and Equilibrium Prices in Posted-Offer Markets

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  • Franciosi, Robert, et al
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    Abstract

    Questionnaire studies suggest that perceptions of fairness cause people to resist price increases following abrupt changes in conditions with no cost justification. This hypothesis is examined in posted-offer markets extending previous work. Consistent with the hypothesis, in the profit-disclosure (fairness) treatment prices are initially below those in the cost and the no-disclosure treatments. But over time prices in all treatments converge to the competitive surplus maximizing equilibrium. Thus 'fairness' is interpreted as being the result of expectations that are not sustainable. Expectations adapt as the market converges to the standard competitive equilibrium prediction. Coauthors are Praveen Kujal, Roland Michelitsch, Vernon Smith, and Gang Deng. Copyright 1995 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 105 (1995)
    Issue (Month): 431 (July)
    Pages: 938-50

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    Handle: RePEc:ecj:econjl:v:105:y:1995:i:431:p:938-50

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    Cited by:
    1. Luini, Luigi & Sabbatini, Pierluigi, 2012. "Demand cross elasticity without substitutability: An experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(2), pages 255-265.
    2. Smith, Vernon L., 2005. "Behavioral economics research and the foundations of economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(2), pages 135-150, March.
    3. Konow, James, 1996. "A positive theory of economic fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 13-35, October.
    4. Praveen Kujal & Vernon L. Smith, 2003. "Fairness And Short Run Price Adjustment In Posted Offer Markets," Economics Working Papers we036024, Universidad Carlos III, Departamento de Economía.
    5. Renner, Elke & Tyran, Jean-Robert, 2004. "Price rigidity in customer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 575-593, December.
    6. Jean-Robert Tyran & Dirk Engelmann, 2005. "To Buy or Not to Buy? An Experimental Study of Consumer Boycotts in Retail Markets," Economica, London School of Economics and Political Science, vol. 72(285), pages 1-16, 02.

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