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Does laboratory trading mirror behavior in real world markets? Fair bargaining and competitive bidding on eBay

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  • Bolton, Gary E.
  • Ockenfels, Axel

Abstract

Laboratory market experiments observe a sharp dichotomy between (selfish) competitive behavior and fair-minded social behavior depending on competitive conditions. While the dichotomy is consistent with social preference theory, the often advanced hypothesis that social behavior is an artifact of laboratory conditions has not heretofore been ruled out. We tested these competing hypotheses in a field experiment on eBay conducted with experienced traders. The buyer behavior we observe strongly confirms the social preference hypothesis. Also, the behavioral patterns in the field experiment mirror fully naturally occurring trading patterns in the market. For instance, some sellers do not use their commitment power as predicted by theories of both selfish and social behavior, with the pattern of deviation reflecting traders’ market experience outside the experiment.

Suggested Citation

  • Bolton, Gary E. & Ockenfels, Axel, 2014. "Does laboratory trading mirror behavior in real world markets? Fair bargaining and competitive bidding on eBay," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 143-154.
  • Handle: RePEc:eee:jeborg:v:97:y:2014:i:c:p:143-154
    DOI: 10.1016/j.jebo.2013.11.003
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    Cited by:

    1. Axel Ockenfels, 2009. "Marktdesign und Experimentelle Wirtschaftsforschung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(s1), pages 31-53, May.
    2. van Damme, Eric & Binmore, Kenneth G. & Roth, Alvin E. & Samuelson, Larry & Winter, Eyal & Bolton, Gary E. & Ockenfels, Axel & Dufwenberg, Martin & Kirchsteiger, Georg & Gneezy, Uri & Kocher, Martin G, 2014. "How Werner Güth's ultimatum game shaped our understanding of social behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 292-318.
    3. Shchetinin, Oleg, 2009. "Contracting under Reciprocal Altruism," TSE Working Papers 09-078, Toulouse School of Economics (TSE).
    4. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.
    5. Alia Gizatulina & Olga Gorelkina, 2017. "Selling 'Money' on EBay: a Field Study of Surplus Division," Cowles Foundation Discussion Papers 2104, Cowles Foundation for Research in Economics, Yale University.

    More about this item

    Keywords

    Competitive pricing; Fairness; eBay; Bargaining; Auction;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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