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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. Seligman, David A. & Schwartz, Barry, 1997. "Domain specificity of fairness judgments in economic transactions," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 579-604, November.
    2. Paul, Maureen, 2006. "A cross-section analysis of the fairness-of-pay perception of UK employees," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(2), pages 243-267, April.
    3. Timothy N. Cason & Lata Gangadharan & Nikos Nikiforakis, 2010. "Can Real-Effort Investments Inhibit the Convergence of Experimental Markets?," Purdue University Economics Working Papers 1232, Purdue University, Department of Economics.
    4. Dirk Engelmann & Hans-Theo Normann, 2003. "An Experimental Test of Strategic Trade Policy," CERGE-EI Working Papers wp212, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    5. Bart J. Wilson, 2012. "Contra Private Fairness," American Journal of Economics and Sociology, Wiley Blackwell, vol. 71(2), pages 407-435, 04.
    6. Konow, James, 1996. "A positive theory of economic fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 13-35, October.
    7. Jean-Robert Tyran & Dirk Engelmann, 2002. "To Buy or Not to Buy? An Experimental Study of Consumer Boycotts in Retail Markets," University of St. Gallen Department of Economics working paper series 2002 2002-13, Department of Economics, University of St. Gallen.
    8. Christian Korth & Stefan Napel, 2009. "Fairness, Price Stickiness, and History Dependence in Decentralized Trade," Working Papers 068, Bavarian Graduate Program in Economics (BGPE).
    9. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
    10. 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.
    11. Kujal, Praveen & Smith, Vernon L., 2008. "Fairness and Short Run Price Adjustment in Posted Offer Markets," Handbook of Experimental Economics Results, Elsevier.
    12. Renner, Elke & Tyran, Jean-Robert, 2004. "Price rigidity in customer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 575-593, December.
    13. 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.
    14. Ellingsen, Tore & Johannesson, Magnus, 2005. "Sunk costs and fairness in incomplete information bargaining," Games and Economic Behavior, Elsevier, vol. 50(2), pages 155-177, February.

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