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Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay

Listed author(s):
  • Gary E. Bolton
  • Axel Ockenfels

We conducted a controlled field experiment on eBay and examined to what extent both social and competitive laboratory behavior is robust to institutionally complex real world markets with experienced traders, who selected themselves into these markets. EBay’s natural trading system provides bridges between lab and field environment that can be exploited to explore differences in behavior in the two environments. We find that many sellers do not make use of their commitment power as predicted by standard theories of both selfish and social behavior. However, a concern for equity strongly affects outcomes and reputation building in bilateral bargaining, while buyer competition effectively masks this concern and robustly yields equilibrium outcomes. The dichotomy of behaviors mirrors observations in laboratory research. Furthermore, we find that behavioral patterns in the field experiment mirror fully naturally occurring trading patterns in the market.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2241.

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Date of creation: 2008
Handle: RePEc:ces:ceswps:_2241
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