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An experimental comparison of two search models

Author

Listed:
  • Martin Sefton

    (Department of Economics, University of Newcastle, Newcastle-upon-Tyne, NE1 7RU, UK)

  • Abdullah Yavas

    (Smeal College of Business Administration, Pennsylvania State University,University Park, PA 16801, USA)

  • Eric Abrams

    (Department of Economics, Hawaii Pacific University, 1060 Bishop Street, Suite 402,Honolulu, HI 96813, USA)

Abstract

We report an experiment designed to investigate markets with consumer search costs. In markets where buyers are matched with one seller at a time, sellers are predicted to sell at prices equal to buyers' valuations. However, we find sellers post prices that offer a more equal division of the surplus, and these prices tend to be accepted, while prices closer to the equilibrium prediction are rejected. At the other extreme, sellers are predicted to sell at a price equal to marginal cost when buyers are matched with two sellers at a time. Here, we find prices are closer to, but still significantly different from, the equilibrium prediction. Thus, our results support theoretical comparative static, but not point, predictions.

Suggested Citation

  • Martin Sefton & Abdullah Yavas & Eric Abrams, 2000. "An experimental comparison of two search models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 735-749.
    • Handle: RePEc:spr:joecth:v:16:y:2000:i:3:p:735-749
    Note: Received: January 10, 1998; revised version: July 24, 1999
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    More about this item

    Keywords

    Experimental search markets; Price dispersion; Diamond paradox.;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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