An Experimental Comparison of Two Search Models

Posted: 29 Nov 2000

See all articles by Eric Abrams

Eric Abrams

Hawaii Pacific University

Martin Sefton

University of Nottingham - School of Economics

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Abstract

We report an experiment designed to investigate markets with consumer search costs. In markets where buyers are matched with one seller at a time, sellers are predicted to sell at prices equal to buyers' valuations. However, we find sellers post prices that offer a more equal division of the surplus, and these prices tend to be accepted, while prices closer to the equilibrium prediction are rejected. At the other extreme, sellers are predicted to sell at a price equal to marginal cost when buyers are matched with two sellers at a time. Here, we find prices are closer to, but still significantly different from, the equilibrium prediction. Thus, our results support theoretical comparative static, but not point, predictions.

Keywords: Experimental Search Markets, Price Dispersion, Diamond Paradox.

JEL Classification: C9, D4, L1

Suggested Citation

Abrams, Eric and Sefton, Martin and Yavas, Abdullah, An Experimental Comparison of Two Search Models. Economic Theory, Vol. 16, Issue 3. Available at SSRN: https://ssrn.com/abstract=239398

Eric Abrams (Contact Author)

Hawaii Pacific University ( email )

Department of Economics 1060 Bishop Street, Suite 402
Honolulu, HI 96813
United States

Martin Sefton

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

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