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An experimental comparison of two search models


Author Info

  • Martin Sefton

    (Department of Economics, University of Newcastle, Newcastle-upon-Tyne, NE1 7RU, UK)

  • Abdullah Yavas

    (Smeal College of Business Administration, Pennsylvania State University,University Park, PA 16801, USA)

  • Eric Abrams

    (Department of Economics, Hawaii Pacific University, 1060 Bishop Street, Suite 402,Honolulu, HI 96813, USA)


We report an experiment designed to investigate markets with consumer search costs. In markets where buyers are matched with one seller at a time, sellers are predicted to sell at prices equal to buyers' valuations. However, we find sellers post prices that offer a more equal division of the surplus, and these prices tend to be accepted, while prices closer to the equilibrium prediction are rejected. At the other extreme, sellers are predicted to sell at a price equal to marginal cost when buyers are matched with two sellers at a time. Here, we find prices are closer to, but still significantly different from, the equilibrium prediction. Thus, our results support theoretical comparative static, but not point, predictions.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 16 (2000)
Issue (Month): 3 ()
Pages: 735-749

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Handle: RePEc:spr:joecth:v:16:y:2000:i:3:p:735-749

Note: Received: January 10, 1998; revised version: July 24, 1999
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Keywords: Experimental search markets; Price dispersion; Diamond paradox.;

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