Price Dispersion in the Lab and on the Internet: Theory and Evidence
AbstractPrice dispersion is ubiquitous in settings that closely approximate textbook Bertrand competition. We show (Propositions 2 and 3) that only a little bounded rationality among sellers is needed to rationalize such dispersion. A variety of statistical tests, based on data sets from two independent laboratory experiments and structural estimates of the parameters of our models, suggest that bounded rationality based theories of price dispersion organize the data remarkably well. Evidence is also presented which suggests that the models are consistent with data from a leading Internet price comparison site.
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Bibliographic InfoPaper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2004-02.
Date of creation: 2004
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Publication status: Published in Rand Journal of Economics, 2004
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Other versions of this item:
- Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
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