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Pricing in competitive search markets: Experimental evidence of the roles of price information and fairness perceptions

Author

Listed:
  • Nejat Anbarci
  • Nick Feltovich

Abstract

Using a competitive search (price-posting) model, Lester (2011) shows that improving buyers’ price information can counter-intuitively lead to higher prices. We test this result using a lab experiment. Moving from 0 to 1uninformed buyers leads to higher prices in both 2(seller)x2(buyer) and 2x3 markets: the former as predicted, the latter the opposite of the theoretical prediction. Perceptions of “fair” prices are a powerful driver of behavior. For buyers, these perceptions correlate with price-responsiveness, which varies systematically across treatments and impacts sellers’ pricing incentives. For sellers, these perceptions correlate with under-pricing, which also varies systematically across treatments.

Suggested Citation

  • Nejat Anbarci & Nick Feltovich, 2014. "Pricing in competitive search markets: Experimental evidence of the roles of price information and fairness perceptions," Monash Economics Working Papers 55-14, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2014-55
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2014/5514pricingincompetitivesearchmarketanbarcifeltovich.pdf
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    Citations

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    Cited by:

    1. Helland, Leif & Moen, Espen R. & Preugschat, Edgar, 2017. "Information and coordination frictions in experimental posted offer markets," Journal of Economic Theory, Elsevier, vol. 167(C), pages 53-74.
    2. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.
    3. Kloosterman, Andrew & Paul, Stephen, 2018. "Ultimatum game bargaining in a partially directed search market," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 60-74.

    More about this item

    Keywords

    Directed search; posted prices; frictions; information; price responsiveness; fairness;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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