We experimentally examine the effects of flexible and fixed prices in markets for experience goods in which demand is driven by trust. With flexible prices, we observe low prices and high quality in competitive (oligopolistic) markets, and high prices coupled with low quality in non-competitive (monopolistic) markets. We then introduce a regulated intermediate price above the oligopoly price and below the monopoly price. The effect in monopolies is more or less in line with standard intuition. As price falls volume increases and so does quality, such that overall efficiency is raised by 50%. However, quite in contrast to standard intuition, we also observe an efficiency rise in response to regulation in oligopolies. Both, transaction volume and traded quality are, in fact, maximal in regulated oligopolies.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6135.
Steffen Huck & Gabriele K. Ruchala & Jean-Robert Tyran, 2007.
"Pricing and Trust,"
Discussion Papers
07-04, University of Copenhagen. Department of Economics.
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Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General D40 - Microeconomics - - Market Structure and Pricing - - - General D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Steffen Huck & Gabriele K. Ruchala & Jean-Robert Tyran, 2006.
"Competition Fosters Trust,"
Discussion Papers
06-22, University of Copenhagen. Department of Economics.
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Dufwenberg, Martin & Gneezy, Uri & Goeree, Jacob K. & Nagel, Rosemarie, 2002.
"Price Floors and Competition,"
Research Papers in Economics
2002:13, Stockholm University, Department of Economics.
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Other versions:
Martin Dufwenberg & Uri Gneezy & Jacob Goeree & Rosemarie Nagel, 2007.
"Price floors and competition,"
Economic Theory,
Springer, vol. 33(1), pages 211-224, October.
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