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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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Bibliographic Info

Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1194.

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Length: 42 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:pur:prukra:1194

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  1. Martin Sefton & Abdullah Yavas & Eric Abrams, 2000. "An experimental comparison of two search models," Economic Theory, Springer, vol. 16(3), pages 735-749.
  2. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  3. Cox, James C & Smith, Vernon L & Walker, James M, 1984. " Theory and Behavior of Multiple Unit Discriminative Auctions," Journal of Finance, American Finance Association, vol. 39(4), pages 983-1010, September.
  4. Timothy N. Cason & Daniel Friedman, 2000. "Buyer Search and Price Dispersion: A Laboratory Study," Econometric Society World Congress 2000 Contributed Papers 1549, Econometric Society.
  5. COOPER, R. & DEJONG, D.V. & FORSYTHE, R. & Tom Ross, 1989. "Communication In The Battle Of The Sexes Game," Carleton Industrial Organization Research Unit (CIORU) 89-03, Carleton University, Department of Economics.
  6. Dirk Engelmann & Veronika Grimm, 2003. "Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation and some Theoretical Insights," CERGE-EI Working Papers wp210, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  8. Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
  9. Elliott, Steven R. & Godby, Robert & Kruse, Jamie Brown, 2003. "An experimental examination of vertical control and cost predation," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 253-281, February.
  10. Davis, Douglas D. & Williams, Arlington W., 1986. "The effects of rent asymmetries in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 7(3), pages 303-316, September.
  11. David, Douglas D & Holt, Charles A, 1996. "Consumer Search Costs and Market Performance," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 133-51, January.
  12. Alger, Dan, 1987. "Laboratory Tests of Equilibrium Predictions with Disequilibrium Data," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 105-45, January.
  13. Cason, Timothy N. & Williams, Arlington W., 1990. "Competitive equilibrium convergence in a posted-offer market with extreme earnings inequities," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 331-352, December.
  14. Andrew Muller, R. & Mestelman, Stuart & Spraggon, John & Godby, Rob, 2002. "Can Double Auctions Control Monopoly and Monopsony Power in Emissions Trading Markets?," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 70-92, July.
  15. Russell Cooper & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1989. "Communication in the Battle of the Sexes Game: Some Experimental Results," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 568-587, Winter.
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Cited by:
  1. Philipp Kircher, 2007. "Efficiency of Directed Search," 2007 Meeting Papers 93, Society for Economic Dynamics.
  2. Philipp Otto & Friedel Bolle, 2011. "Matching markets with price bargaining," Experimental Economics, Springer, vol. 14(3), pages 322-348, September.
  3. Perkis, David F. & Cason, Timothy N. & Tyner, Wallace E., 2012. "An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124096, Agricultural and Applied Economics Association.

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