An experimental comparison of two search models

Martin Sefton, Abdullah Yavas () and Eric Abrams ()
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Eric Abrams: Department of Economics, Hawaii Pacific University, 1060 Bishop Street, Suite 402,Honolulu, HI 96813, USA

Economic Theory, 2000, vol. 16, issue 3, 735-749

Abstract: We report an experiment designed to investigate markets with consumer search costs. In markets where buyers are matched with one seller at a time, sellers are predicted to sell at prices equal to buyers' valuations. However, we find sellers post prices that offer a more equal division of the surplus, and these prices tend to be accepted, while prices closer to the equilibrium prediction are rejected. At the other extreme, sellers are predicted to sell at a price equal to marginal cost when buyers are matched with two sellers at a time. Here, we find prices are closer to, but still significantly different from, the equilibrium prediction. Thus, our results support theoretical comparative static, but not point, predictions.

Keywords: Experimental search markets; Price dispersion; Diamond paradox. (search for similar items in EconPapers)
JEL-codes: C9 D4 L1 (search for similar items in EconPapers)
Date: 2000-08-11
Note: Received: January 10, 1998; revised version: July 24, 1999
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Citations: View citations in EconPapers (37)

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