Behavioral Heuristics and Market Patterns in a Bertrand-Edgeworth Game

Daniel Heymann (), Enrique Kawamura, Roberto Perazzo and Martin Zimmermann
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Daniel Heymann: Department of Economics, Universidad de San Andres & Universidad de Buenos Aires
Roberto Perazzo: ITBA & Department of Economics, Universidad de San Andres
Martin Zimmermann: Department of Economics, Universidad de San Andres

No 108, Working Papers from Universidad de San Andres, Departamento de Economia

Abstract: This paper studies price-setting behavior in a Bertrand-Edgeworth game, a traditional setup that provides a stylized representation of real-world markets (such retail markets). It explores methodological complementarities between analytical, experimental and agent-based simulation approaches. The game under analysis only admits hard-to-characterize mixed-strategy Nash equilibria. This paper uses families of heuristic rules for individual behavior to analyze the resulting market prices. A set of laboratory experiments finds that price-setting choices of agents are described reasonably well through a sales-based simple pricing rule. Average market prices tend to converge from above to quasi-steady states with small individual dispersion, occasionally disturbed by agents who search for profits by raising prices. Salient features of the experimental outcomes can be represented through simulations with artificial agents who apply the sales-based heuristics with parameters calibrated to the experiment.

Keywords: Bertrand-Edgeworth game; behavioral heuristics; Market Patterns (search for similar items in EconPapers)
JEL-codes: C63 C91 D43 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2011-02, Revised 2011-03
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https://webacademicos.udesa.edu.ar/pub/econ/doc108.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Behavioral heuristics and market patterns in a Bertrand–Edgeworth game (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:sad:wpaper:108

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