Intertemporal Pricing in Laboratory Posted Offer Markets with Differential Information

Posted: 24 Mar 2001

See all articles by Aldo Rustichini

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Anne P. Villamil

University of Illinois at Urbana-Champaign - Department of Economics

Abstract

This paper analyzes intertemporal seller pricing and buyer purchasing behavior in a laboratory retail market with differential information. A seller posts one price each period that a buyer either accepts or rejects. Trade occurs over a sequence of "market periods" with a random termination date. The buyer and seller are differentially informed: The seller's cost of producing a unit of a fictitious good is known and constant in all periods, but the buyer's value for the good (demand) is a random variable governed by a Markov Process whose structure is common knowledge. At the beginning of each period the unit's value is determined by "nature" and is privately revealed only to the buyer. The market termination rule is a binary random variable. We conduct 32 laboratory experiments designed to study intertemporal pricing by human subjects in the Posted Offer Institution when demand follows a stochastic process. There are four series of experiments: 8 with simulated buyers, 8 with inexperienced subjects, 8 with once experienced subjects, and 8 with twice experienced subjects.

Keywords and Phrases: Intertemporal pricing, Differential information.

JEL Classification: C91, D82, D83, D40, C61, L16

Suggested Citation

Rustichini, Aldo and Villamil, Anne P., Intertemporal Pricing in Laboratory Posted Offer Markets with Differential Information. Economic Theory, Vol. 16, No. 3 . Available at SSRN: https://ssrn.com/abstract=239394

Aldo Rustichini (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

Anne P. Villamil

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States
217-244-6330 (Phone)

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