Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Competition and Price Transparency in the Market for Lemons: Experimental Evidence†

Competition and Price Transparency in the Market for Lemons: Experimental Evidence† AbstractIn markets with asymmetric information, where equilibria are often inefficient, bargaining can help promote welfare. We design an experiment to examine the impact of competition and price transparency in such settings. Consistent with the theoretical predictions, we find that competition promotes efficiency if bargainers cannot observe each other’s price offers. Contrary to the predictions, however, the efficiency-enhancing effect of competition persists even when offers are observable. We explore different behavioral explanations for the absence of a detrimental effect of price transparency. Remarkably, implementing the strategy method improves subjects’ conditional reasoning, delivering the predicted loss in efficiency when offers are observable. (JEL C78, D82, L15) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Competition and Price Transparency in the Market for Lemons: Experimental Evidence†

Competition and Price Transparency in the Market for Lemons: Experimental Evidence†

American Economic Journal: Microeconomics , Volume 13 (2) – May 1, 2021

Abstract

AbstractIn markets with asymmetric information, where equilibria are often inefficient, bargaining can help promote welfare. We design an experiment to examine the impact of competition and price transparency in such settings. Consistent with the theoretical predictions, we find that competition promotes efficiency if bargainers cannot observe each other’s price offers. Contrary to the predictions, however, the efficiency-enhancing effect of competition persists even when offers are observable. We explore different behavioral explanations for the absence of a detrimental effect of price transparency. Remarkably, implementing the strategy method improves subjects’ conditional reasoning, delivering the predicted loss in efficiency when offers are observable. (JEL C78, D82, L15)

Loading next page...
 
/lp/american-economic-association/competition-and-price-transparency-in-the-market-for-lemons-5Gq7wN90dO
Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20170087
Publisher site
See Article on Publisher Site

Abstract

AbstractIn markets with asymmetric information, where equilibria are often inefficient, bargaining can help promote welfare. We design an experiment to examine the impact of competition and price transparency in such settings. Consistent with the theoretical predictions, we find that competition promotes efficiency if bargainers cannot observe each other’s price offers. Contrary to the predictions, however, the efficiency-enhancing effect of competition persists even when offers are observable. We explore different behavioral explanations for the absence of a detrimental effect of price transparency. Remarkably, implementing the strategy method improves subjects’ conditional reasoning, delivering the predicted loss in efficiency when offers are observable. (JEL C78, D82, L15)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2021

There are no references for this article.