Cheating in markets: A laboratory experiment

Alessandra Cassar, Daniel Friedman and Patricia Higino Schneider

Journal of Economic Behavior & Organization, 2009, vol. 72, issue 1, 240-259

Abstract: We develop a two-market model under three conditions: autarky, frictionless free trade, and free trade with cheating. With cheating, buyers can underpay by [pi]% in cross-market trades and sellers can deliver [pi]% of full value. We solve for competitive equilibrium with cheating and obtain novel testable predictions on price, volume and surplus. We test these in a laboratory experiment using parameters intended to challenge the theory. The results are generally consistent with competitive equilibrium. We find evidence of price unification, market segmentation, a cross-market volume of trade lower under cheating than in frictionless free trade, but a higher overall volume.

Keywords: Cheating; Missing; trade; puzzle; Frictions; Market; experiment (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:72:y:2009:i:1:p:240-259

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