Gift Exchange and Reciprocity in Competitive Experimental Markets

Ernst Fehr, Georg Kirchsteiger and Arno Riedl

No 14, Economics Series from Institute for Advanced Studies

Abstract: One of the outstanding results of three decades of laboratory market research is that under rather weak conditions prices and quantities in competitive experimental markets converge to the competitive equilibrium. Yet, the design of these experiments ruled out gift exchange or reciprocity motives, that is, subjects could not reciprocate for a gift. This paper reports the results of experiments which do not rule out reciprocal interactions between buyers and sellers. Sellers have the opportunity to choose quality levels which are above the levels enforceable by buyers. In principle they can, therefore, reward buyers who offer them high prices. Yet, such reciprocating behaviour lowers sellers' monetary payoff and is, hence, not subgame perfect. The data reveal that a majority of sellers behave reciprocally and that this behaviour is anticipated by buyers. As a result, buyers are willing to pay prices which are substantially above sellers' reservation prices. These results indicate that reciprocity motives may indeed be capable of driving a competitive experimental market permanently away from the competitive outcome. The data, therefore, support the gift exchange approach to the explanation of involuntary unemployment.

Keywords: Gift Exchange; Reciprocity; Experiments (search for similar items in EconPapers)
JEL-codes: C91 C92 J41 J64 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1995-09
References: Add references at CitEc
Citations: View citations in EconPapers (11)

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https://irihs.ihs.ac.at/id/eprint/854 First version, 1995 (application/pdf)

Related works:
Working Paper: Gift Exchange and Reciprocity in Competitive Experimental Markets (2003)
Journal Article: Gift exchange and reciprocity in competitive experimental markets (1998)
Working Paper: Gift exchange and reciprocity in competitive experimental markets (1998)
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