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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 framed field experiment on eBay, and examined to what extent both social and competitive laboratory behavior are robust to institutionally complex real world markets with experienced traders, who selected themselves into these markets. For buyers, the data strongly confirm the dichotomy between equitable bargaining and competitive bidding predicted by social preference equilibrium and suggested by lab evidence. Importantly, reputation building on eBay cannot explain the social behavior. We also observe that the behavioral patterns in the field experiment mirror fully naturally occurring trading patterns in the market. In particular, some sellers fail to 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. These patterns further amplify the dichotomy between bilateral and competitive bidding.

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Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 36.

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Date of creation: 16 Aug 2007
Date of revision: 24 Feb 2011
Handle: RePEc:kls:series:0036
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