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A Market with Frictions in the Matching Process: An Experimental Study

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  • Cason, Timothy N.
  • Noussair, Charles

Abstract

We construct a laboratory market with the structure of the theoretical model of Burdett, Shi, and Wright (2001). The model is a simple and natural way to represent a market in which there is a friction in the matching process between buyers and sellers. Sellers first simultaneously post prices at which they are willing to sell their single unit of a good. Buyers then simultaneously choose a seller from whom to attempt to purchase a unit. If more than one buyer chooses the same seller, the good is randomly sold to one of the buyers. If a seller is not chosen by any buyer, his unit is not sold. Our experimental results show a broad consistency with the model of Burdett et al. and less support for an alternative model, which is analogous to the model of Montgomery (1991), and which has different assumptions on the strategic interaction between sellers. The main departures that we observe from the Burdett et al. model are that (a) price dispersion exists and is slow to decay, (b) prices exceed the equilibrium level when there are only two sellers, and (c) buyers purchase probabilities are insufficiently responsive to price differences when there are two sellers.

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  • Cason, Timothy N. & Noussair, Charles, 2005. "A Market with Frictions in the Matching Process: An Experimental Study," Purdue University Economics Working Papers 1194, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1194
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    Cited by:

    1. Philipp Otto & Friedel Bolle, 2011. "Matching markets with price bargaining," Experimental Economics, Springer;Economic Science Association, vol. 14(3), pages 322-348, September.
    2. Nejat Anbarci & Nick Feltovich, 2013. "Directed Search, Coordination Failure, And Seller Profits: An Experimental Comparison Of Posted Pricing With Single And Multiple Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 873-884, August.
    3. Gabriele Camera & Jaehong Kim, 2016. "Dynamic directed search," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 131-154, June.
    4. Andrew Kloosterman, 2016. "Directed search with heterogeneous firms: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 19(1), pages 51-66, March.
    5. Philipp Kircher, 2007. "Efficiency of Directed Search," 2007 Meeting Papers 93, Society for Economic Dynamics.
    6. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    7. Jeong, Dawoon & Sesmero, Juan Pablo & Reeling, Carson, 2023. "Experimental Evidence of Efficiency and Equity of Posted Price Markets for Irrigation Water," 2023 Annual Meeting, July 23-25, Washington D.C. 335840, Agricultural and Applied Economics Association.
    8. Helland, Leif & Moen, Espen R. & Preugschat, Edgar, 2017. "Information and coordination frictions in experimental posted offer markets," Journal of Economic Theory, Elsevier, vol. 167(C), pages 53-74.
    9. Kircher, Philipp & Wright, Randall & Julien, Benoit & Guerrieri, Veronica, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    10. Chen, Yan & Fehr, Ernst & Fischbacher, Urs & Morgan, Peter, 2015. "Decentralized matching and social segregation," Games and Economic Behavior, Elsevier, vol. 90(C), pages 17-43.
    11. Kloosterman, Andrew & Paul, Stephen, 2018. "Ultimatum game bargaining in a partially directed search market," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 60-74.
    12. David F. Perkis & Timothy N. Cason & Wallace E. Tyner, 2016. "An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 703-718, April.
    13. Katharina Momsen, 2021. "The effects of price information and communication in markets with capacity constraints: An experiment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 871-892, November.
    14. Yan, Huibin & Friedman, Daniel & Munro, David, 2016. "An experiment on a core controversy," Games and Economic Behavior, Elsevier, vol. 96(C), pages 132-144.
    15. Anbarci, Nejat & Dutu, Richard & Feltovich, Nick, 2015. "Inflation tax in the lab: a theoretical and experimental study of competitive search equilibrium with inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 17-33.
    16. Nejat Anbarci & Nick Feltovich, 2018. "Pricing in Competitive Search Markets: The Roles of Price Information and Fairness Perceptions," Management Science, INFORMS, vol. 64(3), pages 1101-1120, March.

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