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Pricing in Competitive Search Markets: The Roles of Price Information and Fairness Perceptions

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  • Nejat Anbarci

    (Department of Economics, Deakin University, Burwood, Victoria 3125, Australia)

  • Nick Feltovich

    (Department of Economics, Monash University, Clayton, Victoria 3800, Australia)

Abstract

We use a competitive search (price-posting) framework to experimentally examine how buyer information and fairness perceptions affect market behavior. We observe that moving from zero to one uninformed buyers leads to higher prices in both 2 (seller)×2 (buyer) and 2 × 3 markets: the former as predicted under standard preferences, the latter the opposite of the theoretical prediction. Perceptions of fair prices—elicited in the experiment—are a powerful driver of behavior. For buyers, fair prices correlate with price responsiveness, which varies systematically across treatments and impacts sellers’ pricing incentives. For sellers, fair prices correlate with underpricing, which also varies systematically across treatments.

Suggested Citation

  • Nejat Anbarci & Nick Feltovich, 2018. "Pricing in Competitive Search Markets: The Roles of Price Information and Fairness Perceptions," Management Science, INFORMS, vol. 64(3), pages 1101-1120, March.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:3:p:1101-1120
    DOI: 10.1287/mnsc.2016.2620
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