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Price Dispersion in the Lab and on the Internet: Theory and Evidence

Michael Baye and John Morgan

No 2004-02, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: Price dispersion is ubiquitous in settings that closely approximate textbook Bertrand competition. We show (Propositions 2 and 3) that only a little bounded rationality among sellers is needed to rationalize such dispersion. A variety of statistical tests, based on data sets from two independent laboratory experiments and structural estimates of the parameters of our models, suggest that bounded rationality based theories of price dispersion organize the data remarkably well. Evidence is also presented which suggests that the models are consistent with data from a leading Internet price comparison site.

Keywords: Price; dispersion (search for similar items in EconPapers)
JEL-codes: D43 L13 M3 (search for similar items in EconPapers)
Date: 2004
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Published in Rand Journal of Economics, 2004

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http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2004-02-baye-morgan.pdf (application/pdf)

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Journal Article: Price Dispersion in the Lab and on the Internet: Theory and Evidence (2004)
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