TY - JOUR
T1 - PQ strategies in monopolistic competition: Some insights from the lab
AU - Assenza, Tiziana
AU - Grazzini, Jakob
AU - Hommes, Cars
AU - Massaro, Domenico
PY - 2015
Y1 - 2015
N2 - We present results from 50-rounds experimental markets in which firms decide repeatedly both on price and quantity of a perishable good. The experiment is designed to study the price–quantity setting behavior of subjects acting as firms in monopolistic competition. In the implemented treatments subjects are asked to make both production and pricing decisions given different information sets. We investigate how subjects decide on prices and quantities in response to signals from the firms׳ internal conditions, i.e., individual profits, excess demand, and excess supply, and the market environment, i.e., aggregate price level. We find persistent heterogeneity in individual behavior, with about 46% of market followers, 28% profit-adjusters and 26% demand adjusters. Nevertheless, prices and quantities tend to converge to the monopolistically competitive equilibrium and we find that subjects׳ behavior is well described by learning heuristics.
AB - We present results from 50-rounds experimental markets in which firms decide repeatedly both on price and quantity of a perishable good. The experiment is designed to study the price–quantity setting behavior of subjects acting as firms in monopolistic competition. In the implemented treatments subjects are asked to make both production and pricing decisions given different information sets. We investigate how subjects decide on prices and quantities in response to signals from the firms׳ internal conditions, i.e., individual profits, excess demand, and excess supply, and the market environment, i.e., aggregate price level. We find persistent heterogeneity in individual behavior, with about 46% of market followers, 28% profit-adjusters and 26% demand adjusters. Nevertheless, prices and quantities tend to converge to the monopolistically competitive equilibrium and we find that subjects׳ behavior is well described by learning heuristics.
KW - Laboratory experiments
KW - Monopolistic competition
KW - Price–quantity behavior
KW - Laboratory experiments
KW - Monopolistic competition
KW - Price–quantity behavior
UR - http://hdl.handle.net/10807/65447
U2 - 10.1016/j.jedc.2014.08.017
DO - 10.1016/j.jedc.2014.08.017
M3 - Article
SN - 0165-1889
VL - 50
SP - 62
EP - 77
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
ER -