A Market with Frictions in the Matching Process: An Experimental Study
AbstractWe 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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Bibliographic InfoPaper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1194.
Length: 42 pages
Date of creation: Jun 2005
Date of revision:
Other versions of this item:
- Timothy N. Cason & Charles Noussair, 2007. "A Market With Frictions In The Matching Process: An Experimental Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 665-691, 05.
- NEP-ALL-2006-09-23 (All new papers)
- NEP-EXP-2006-09-23 (Experimental Economics)
- NEP-UPT-2006-09-23 (Utility Models & Prospect Theory)
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