Cheating in markets: A laboratory experiment
AbstractWe develop a two-market model under three conditions: autarky, frictionless free trade, and free trade with cheating. With cheating, buyers can underpay by [pi]% in cross-market trades and sellers can deliver [pi]% of full value. We solve for competitive equilibrium with cheating and obtain novel testable predictions on price, volume and surplus. We test these in a laboratory experiment using parameters intended to challenge the theory. The results are generally consistent with competitive equilibrium. We find evidence of price unification, market segmentation, a cross-market volume of trade lower under cheating than in frictionless free trade, but a higher overall volume.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 72 (2009)
Issue (Month): 1 (October)
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Web page: http://www.elsevier.com/locate/jebo
Cheating Missing trade puzzle Frictions Market experiment;
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