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Market games as social dilemmas

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  • Iván Barreda-Tarrazona
  • Aurora García-Gallego
  • Nikolaos Georgantzis
  • Nicholas Ziros

Abstract

We study an experimental exchange market based on Shapley and Shubik (1977). Two types of players with different preferences and endowments independently submit quantities of the goods they wish to exchange in the market. We implement a case in which the Nash equilibrium involves minimum exchange or no trade at all. This is almost never confirmed by our laboratory data. On the contrary, after a sufficiently large number of periods, convergence close to full trade is obtained, which can be supported as an epsilon symmetric strategy evolutionary stable equilibrium. We also study cheap talk communication within pairs of traders from the same (horizontal) and opposite (vertical) sides of the market. As predicted by the theory, horizontal communication restricts trade, whereas vertical communication leads to higher bids, but always lower or equal than those achieved tacitly by learning alone. Vertical messages limit the collusive effect of horizontal communication when the former precede the latter. Results do not differ when players are allowed to choose the communication mode.

Suggested Citation

  • Iván Barreda-Tarrazona & Aurora García-Gallego & Nikolaos Georgantzis & Nicholas Ziros, 2015. "Market games as social dilemmas," University of Cyprus Working Papers in Economics 07-2015, University of Cyprus Department of Economics.
  • Handle: RePEc:ucy:cypeua:07-2015
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    More about this item

    Keywords

    Efficiency; strategic market games; experiments; vertical communication; horizontal communication;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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