An experimental study of price dispersion

Morgan, John; Orzen, Henrik; Sefton, Martín

doi:10.1016/j.geb.2004.07.005

Cited by 102 publications

(74 citation statements)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…What is more, both price effects for the entrants and incumbents cause price dispersion to follow an inverted U-shape relation with the number of firms in the market. Morgan, Orzen, and Sefton (2006) support the results by Janssen and Moraga-González:…”

Section: Relevant Theoretical Literature On Price Dispersion and Hyposupporting

confidence: 91%

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

2016

View full text Add to dashboard Cite

We investigate the impact of consumer search and competition on pricing strategies in Germany s electricity retail. We utilize a unique panel dataset on spatially varying search requests at major online price comparison websites to construct a direct measure of search intensity and combine this information with zip code level data on electricity tariffs between 2011 and 2014. The paper stands out by explaining price dispersion by differing pricing strategies of former incumbents and entrant firms, which are distinct in their attributable shares in informed versus uninformed consumers. Our empirical results suggest causal evidence for an inverted U-shape effect of consumer search intensity on price dispersion in a clearinghouse environment as in Stahl (1989). The dispersion is caused by opposite pricing strategies of incumbents and entrants, with incumbents initially increasing and entrants initially decreasing tariffs as a reaction to more consumer search. We also find an inverted Ushape effect of competition on price dispersion, consistent with theoretical findings by Janssen and Moraga-González (2004). Again, the effect can be explained by opposing pricing strategies of incumbents and entrants.

show abstract

Section: Relevant Theoretical Literature On Price Dispersion and Hyposupporting

confidence: 91%

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

2016

View full text Add to dashboard Cite

show abstract

“…They, in fact, arise in direct response to recent experimental work on the economically important phenomenon of price dispersion. Cason and Friedman (2003) and Morgan, Orzen, and Sefton (2006) report on experimental investigations of the price dispersion models of Burdett and Judd (1983) and Varian (1980) respectively. Both studies report aggregate data that is remarkably close to the price distribution that would be generated if the subjects had been playing the mixed Nash equilibrium.…”

Section: Introductionmentioning

confidence: 99%

Learning in games with unstable equilibria

Benaı̈m

Hofbauer

Hopkins

2009

Journal of Economic Theory

View full text Add to dashboard Cite

We propose a new concept for the analysis of games, the TASP, which gives a precise prediction about non-equilibrium play in games whose Nash equilibria are mixed and are unstable under fictitious play-like learning processes. We show that, when players learn using weighted stochastic fictitious play and so place greater weight on more recent experience, the time average of play often converges in these "unstable" games, even while mixed strategies and beliefs continue to cycle. This time average, the TASP, is related to the best response cycle first identified by Shapley (1964). Though conceptually distinct from Nash equilibrium, for many games the TASP is close enough to Nash to create the appearance of convergence to equilibrium. We discuss how these theoretical results may help to explain data from recent experimental studies of price dispersion.Journal of Economic Literature classification numbers: C72, C73, D83.

show abstract

“…Two price equilibria were shown to exist in the well-known Salop and Stiglitz (1977) search model. Experimental evidence confirming predictions of search models that price dispersion exists in equilibrium when goods are homogenous but not all consumers are informed is in Morgan, Orzen, and Sefton (2006), Cason and Datta (2006), and Grether, Schwartz, and Wilde (1992). Also, Kim, Dunn, and Mumy (2005) test a credit card model in which all consumers are rational and some search more than others.…”

Section: Remarkmentioning

confidence: 60%

How Much Irrationality Does the Market Permit?

Schwartz

2008

The Journal of Legal Studies

View full text Add to dashboard Cite

This article asks whether competition can ameliorate the consequences of cognitive error.Consumers differ cognitively, some being more prone to err (the "naive") than others (the "sophisticated"). Competition among firms is analyzed with a search equilibrium model. Firms offer an exploitative contract or a naive contract to a consumer population partitioned in two ways: some consumers are sophisticated while others are naive, and some consumers search for preferred contracts while others visit one firm. There are two principal results. First, when consumers shop, neither contract type is priced monopolistically, and competitive pricing sometimes obtains. Second, when enough consumers are sophisticated and the naive have a relatively low willingness to pay for their preferred contract, exploitative contracts decline in frequency and may actually vanish. These results suggest that while decision makers should continue to ask if consumers suffer from cognitive error, they also should ask whether markets do, or could be helped to, ameliorate error's consequences.

show abstract

An experimental study of price dispersion

Cited by 102 publications

References 20 publications

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

Learning in games with unstable equilibria

How Much Irrationality Does the Market Permit?

Contact Info

Product

Resources

About