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An Experimental Investigation of Price Dispersion and Cycles

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  • Timothy N. Cason
  • Daniel Friedman
  • Ed Hopkins

Abstract

We report a continuous-time experiment studying the Burdett-Judd model, whose unique Nash equilibrium (NE) features dispersed prices. Adaptive dynamics predict that the NE is stable for one of our parameter sets and unstable for another. The empirical price distribution is close to the NE distribution for the stable parameter set, but for the unstable parameter set it skews toward higher prices in its NE support interval. We offer an empirical definition of price cycles in terms of changes over time in robust measures of central tendency and dispersion, by which the data exhibit persistent cycles in both treatments but larger cycles for the unstable parameters. Results are roughly similar for professional and student sellers and for limited-information treatments.
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Suggested Citation

  • Timothy N. Cason & Daniel Friedman & Ed Hopkins, 2020. "An Experimental Investigation of Price Dispersion and Cycles," Purdue University Economics Working Papers 1324, Purdue University, Department of Economics.
  • Handle: RePEc:pur:prukra:1324
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    References listed on IDEAS

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    3. Benndorf, Volker & Martínez-Martínez, Ismael & Normann, Hans-Theo, 2021. "Games with coupled populations: An experiment in continuous time," Journal of Economic Theory, Elsevier, vol. 195(C).
    4. Wang Yijia & Wang Zhijian, 2023. "Pulse in collapse: a game dynamics experiment," Papers 2302.09336, arXiv.org.
    5. Nobuyuki Hanaki & Aidas Masiliunas, 2021. "Market Concentration and Incentives to Collude in Cournot Oligopoly Experiments," ISER Discussion Paper 1131, Institute of Social and Economic Research, Osaka University.
    6. Zhijian Wang & Shujie Zhou & Qinmei Yao & Yijia Wang, 2022. "Dynamic Structure in Four-strategy Game: Theory and Experiment," Papers 2203.14669, arXiv.org.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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