Pricing and Trust
We experimentally examine the effects of flexible and fixed prices in markets for experience goods in which demand is driven by trust. With flexible prices, we observe low prices and high quality in competitive (oligopolistic) markets, and high prices coupled with low quality in non-competitive (monopolistic) markets. We then introduce a regulated intermediate price above the oligopoly price and below the monopoly price. The effect in monopolies is more or less in line with standard intuition. As price falls volume increases and so does quality, such that overall efficiency is raised by 50%. However, quite in contrast to standard intuition, we also observe an efficiency rise in response to regulation in oligopolies. Both, transaction volume and traded quality are, in fact, maximal in regulated oligopolies.
|Date of creation:||Jan 2007|
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- Bohnet, Iris & Croson, Rachel, 2004. "Trust and trustworthiness," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 443-445, December.
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Research Papers in Economics
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CEPR Discussion Papers
6009, C.E.P.R. Discussion Papers.
- Smith, Vernon L & Williams, Arlington W, 1981. "On Nonbinding Price Controls in a Competitive Market," American Economic Review, American Economic Association, vol. 71(3), pages 467-74, June.
- Iris Bohnet & Heike Harmgart & Steffen Huck & Jean-Robert Tyran, 2005. "Learning Trust," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 322-329, 04/05.
- Seale, James L., Jr. & Regmi, Anita & Bernstein, Jason, 2003.
"International Evidence On Food Consumption Patterns,"
33580, United States Department of Agriculture, Economic Research Service.
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"Price Controls and the Behavior of Auction Markets: An Experimental Examination,"
253, California Institute of Technology, Division of the Humanities and Social Sciences.
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"Repetition and Reputation: Implications for Trust and Trustworthiness When Institutions Change,"
CREMA Working Paper Series
2004-09, Center for Research in Economics, Management and the Arts (CREMA).
- Iris Bohnet & Steffen Huck, 2004. "Repetition and Reputation: Implications for Trust and Trustworthiness When Institutions Change," American Economic Review, American Economic Association, vol. 94(2), pages 362-366, May.
- Claudia Keser, 2002. "Trust and Reputation Building in E-Commerce," CIRANO Working Papers 2002s-75, CIRANO.
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