Pricing in competitive search markets: Experimental evidence of the roles of price information and fairness perceptions

Nejat Anbarci () and Nick Feltovich

No 55-14, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Using a competitive search (price-posting) model, Lester (2011) shows that improving buyers’ price information can counter-intuitively lead to higher prices. We test this result using a lab experiment. Moving from 0 to 1uninformed buyers leads to higher prices in both 2(seller)x2(buyer) and 2x3 markets: the former as predicted, the latter the opposite of the theoretical prediction. Perceptions of “fair” prices are a powerful driver of behavior. For buyers, these perceptions correlate with price-responsiveness, which varies systematically across treatments and impacts sellers’ pricing incentives. For sellers, these perceptions correlate with under-pricing, which also varies systematically across treatments.

Keywords: Directed search; posted prices; frictions; information; price responsiveness; fairness (search for similar items in EconPapers)
JEL-codes: C78 C90 D63 D83 E30 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-12
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Citations: View citations in EconPapers (4)

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