Basic economic theory predicts that a consumer’s willingness to pay for a good is affected by the availability of complements and substitutes. In an auction setting, this theory implies that the presence of complements would increase bid prices for a good, while the presence of substitutes would decrease bid prices for a good. We designed an experiment that allows the calculation of inverse elasticities, the inverse-demand equivalent of conventional price elasticities. Our results show that the availability of complementary and substitute products affects bids in the expected directions. This finding has important implications for researchers who design experimental auctions.
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Paper provided by Kenyon College, Department of Economics in its series Working Papers with number
0801.
Find related papers by JEL classification: C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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