State dependent price setting rules under implicit thresholds: An experiment
Justin D. LeBlanc,
Andrea Civelli (),
Cary Deck and
Journal of Economic Dynamics and Control, 2016, vol. 68, issue C, 17-44
How firms make their pricing decisions is a fundamental question of macroeconomics. We use a laboratory experiment to examine individual choices in a price updating task that provide insight into how well state dependent models reflect behavior. We find that in general subjects behave as if they recognize the importance of a state dependent pricing strategy, but they are unable to ascertain this threshold with precision and they also exhibit a substantial degree of time dependence. As a result, they update prices too frequently, and perform statistically significantly fewer real effort profit-generating tasks than theoretically optimal under full state dependence, which results in statistically significantly lower profits as well.
Keywords: Laboratory experiments; Price rigidity; State dependent models; Dynamic pricing (search for similar items in EconPapers)
JEL-codes: C91 D03 D21 E30 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:68:y:2016:i:c:p:17-44
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