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Market games as social dilemmas

Author

Listed:
  • Iván Barreda Tarrazona

    (LEE & Economics Department, Universitat Jaume I, Castellón, Spain)

  • Aurora García-Gallego

    (LEE & Economics Department, Universitat Jaume I, Castellón, Spain)

  • Nikolaos Georgantzis

    (UJI-LEE, Spain and Agriculture Policy and Development, University of Reading, UK)

  • Nikolas Ziros

    (Department of Economics, University of Cyprus, Cyprus)

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 b y 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 & Nikolas Ziros, 2015. "Market games as social dilemmas," Working Papers 2015/10, Economics Department, Universitat Jaume I, Castellón (Spain).
    • Handle: RePEc:jau:wpaper:2015/10
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    More about this item

    Keywords

    Efficiency; strategic market games; experiments; vertical communication; horizontal communication technology;
    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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