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Revisiting Marshallian versus Walrasian Stability in an Experimental Market

Author

Listed:
  • Junyi Shen

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan, and School of Economics, Shanghai University, China)

  • Ken-Ichi Shimomura

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Takehiko Yamato

    (Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology)

  • Tokinao Ohtaka

    (Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology)

  • Kiyotaka Takahashi

    (Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology)

Abstract

We study dynamics in pit market trading by a laboratory experiment. Our exchange economy model contains two types of consumers and two kinds of commodities, and three competitive equilibria exist. The two equilibria with the lowest, and the highest relative prices are beneficial for one type of the consumers, and the intermediate price gives an equitable allocation. The theory of Walrasian tatonnement dynamics predicts that relative prices diverge from the intermediate equilibrium towards the lowest equilibrium or the highest equilibrium depending on initial prices. On the other hand, Marshallian quantity adjustment process leads the total supplied volume to the intermediate equilibrium only regardless of initial states. In order to examine how robust the equilibrium selection is, we conducted a manual experiment of pit market trading with different combinations of ethnicities of subjects in Kenya. Our result shows strong support for the convergence to the intermediate equilibrium, which is unstable in Walrasian tatonnement dynamics and is stable in Marshallian quantity adjustment process.

Suggested Citation

  • Junyi Shen & Ken-Ichi Shimomura & Takehiko Yamato & Tokinao Ohtaka & Kiyotaka Takahashi, 2015. "Revisiting Marshallian versus Walrasian Stability in an Experimental Market," Discussion Paper Series DP2015-30, Research Institute for Economics & Business Administration, Kobe University, revised May 2016.
    • Handle: RePEc:kob:dpaper:dp2015-30
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2015-30.pdf
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    References listed on IDEAS

    as
    1. Timothy Cason & Tatsuyoshi Saijo & Takehiko Yamato, 2002. "Voluntary Participation and Spite in Public Good Provision Experiments: An International Comparison," Experimental Economics, Springer;Economic Science Association, vol. 5(2), pages 133-153, October.
    2. Shapley, Lloyd S & Shubik, Martin, 1977. "An Example of a Trading Economy with Three Competitive Equilibria," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 873-875, August.
    3. Ken-Ichi Shimomura & Takehiko Yamato, 2011. "Impact of Ethnicities on Market Outcome: Results of Market Experiments in Kenya," Discussion Paper Series DP2011-10, Research Institute for Economics & Business Administration, Kobe University.
    4. Roth, Alvin E. & Vesna Prasnikar & Masahiro Okuno-Fujiwara & Shmuel Zamir, 1991. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study," American Economic Review, American Economic Association, vol. 81(5), pages 1068-1095, December.
    5. Plott, Charles R & George, Glen, 1992. "Marshallian vs. Walrasian Stability in an Experimental Market," Economic Journal, Royal Economic Society, vol. 102(412), pages 437-460, May.
    6. Charles A. Holt, 1996. "Classroom Games: Trading in a Pit Market," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 193-203, Winter.
    7. John Chipman, 2010. "Multiple equilibrium under CES preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 129-145, October.
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    Cited by:

    1. Emiko Fukuda & Shuhei Sato & Junyi Shen & Ken-Ichi Shimomura & Takehiko Yamato, 2020. "Walrasian Dynamics with Endowment Changes: The Gale Example in a Laboratory Market Experiment," Discussion Paper Series DP2020-20, Research Institute for Economics & Business Administration, Kobe University, revised Apr 2021.

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    More about this item

    Keywords

    Marshallian stability; Walrasian stability; Experiments; Pit market; Kenya;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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