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An Experimental Investigation of Price Dispersion and Cycles

Cason, Timothy and Friedman, Daniel and Hopkins, Ed (2021) 'An Experimental Investigation of Price Dispersion and Cycles.' Journal of Political Economy (3). pp. 789-841. ISSN 0022-3808

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Abstract

We report a continuous time experiment studying the classic Burdett and Judd (1983)model, whose unique Nash equilibrium (NE) features dispersed prices. Adaptive dy-namics predict that the NE is stable for one parameter set we use, and unstable foranother parameter set. The empirical price distribution turns out to be close to theNE distribution for the stable parameter set overall, but for the unstable parameterset the empirical distribution skews towards higher prices in its NE support interval.We offer an empirical definition of price cycles in terms of changes over time in robustmeasures of central tendency (median) and dispersion (interquartile range). By thatdefinition, the data exhibit persistent cycles in both treatments, but with larger cyclesfor the unstable parameters. Results are roughly similar for professional and studentsellers and for limited information treatments.

Item Type: Article
Uncontrolled Keywords: price dispersion, laboratory experiment, cycles, stability of equilibrium
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 03 Aug 2020 16:59
Last Modified: 06 Jan 2022 14:16
URI: http://repository.essex.ac.uk/id/eprint/28405

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