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Competing Against Simulated Equilibrium Price Dispersions: An Experiment On Internet-Assisted Search Markets

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Author Info

  • Aurora García-Gallego

    ()
    (Universitat Jaume I)

  • Nikolaos Georgantzís

    ()
    (Universitat Jaume I)

  • Pedro Pereira

    ()
    (Autoridade da Concorrência)

  • José C. Pernías-Cerrillo

    ()
    (LINEEX, Universitat de Valencia)

Abstract

In a four-treatment experiment, we test some of the hypotheses in García-Gallego et al. (2004) concerning competition among a number of firms of which some (or all) are indexed by a price-comparison engine facilitating buyers’ search process. In this paper, we isolate individual behavior from noise due to other players’ actions and learning, facing each subject with simulated rivals whose prices are extracted from mixed strategy equilibrium distributions. We find systematic deviations from both theoretical distributions and previous data obtained in sessions where all players were human. Specifically, departures of experimental data from the corresponding theoretical predictions are enhanced in this setting as compared to our previous research in which all agents were represented by human players. This suggests that the divergence between theoretical and observed price reported there should not be attributed to noisy learning and strategic uncertainty due to subjects’ interaction with other players. Furthermore, economic tests on players’ risk attitudes organize pricing behavior in meaningful, although not always compatible, ways.

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File URL: http://www.netinst.org/Georgantzis.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 05-12.

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Length: 30 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:net:wpaper:0512

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Web page: http://www.NETinst.org/

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References

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  1. Samuelson, Larry & Zhang, Jianbo, 1992. "Search costs and prices," Economics Letters, Elsevier, vol. 38(1), pages 55-60, January.
  2. Cason, Timothy N. & Datta, Shakun, 2006. "An experimental study of price dispersion in an optimal search model with advertising," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 639-665, May.
  3. Aurora García-Gallego & Nikolaos Georgantzís & Pedro Pereira & José C. Pernías-Cerrillo, 2004. "Risk Attitudes and Internet Search Engines: Theory and Experimental Evidence," Working Papers 04-03, NET Institute, revised Oct 2004.
  4. Timothy N. Cason & Shakun Datta, 2008. "Costly Buyer Search in Laboratory Markets with Seller Advertising," Purdue University Economics Working Papers 1212, Purdue University, Department of Economics.
  5. Pedro Pereira, 2004. "Do Lower Search Costs Reduce Prices and Price Dispersion?," Working Papers 04, Portuguese Competition Authority.
  6. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  7. Timothy N. Cason & Daniel Friedman, 2000. "Buyer Search and Price Dispersion: A Laboratory Study," Econometric Society World Congress 2000 Contributed Papers 1549, Econometric Society.
  8. Baye, Michael R. & Kovenock, Dan & de Vries, Casper G., 1992. "It takes two to tango: Equilibria in a model of sales," Games and Economic Behavior, Elsevier, vol. 4(4), pages 493-510, October.
  9. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
  10. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  11. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  12. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  13. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  14. Guimaraes, Paulo, 1996. "Search Intensity in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 415-26, December.
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Cited by:
  1. Aurora García-Gallego & Nikolaos Georgantzís & Ainhoa Jaramillo-Gutiérrez & Melanie Parravano, 2010. "The lottery-panel task for bi-dimensional parameter-free elicitation of risk attitudes," ThE Papers 10/12, Department of Economic Theory and Economic History of the University of Granada..

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