Pricing in competitive search markets: experimental evidence of the roles of price information and fairness perceptions

Nejat Anbarci and Nick Feltovich

We use a competitive search (price-posting) framework to experimentally examine how buyer information and fairness perceptions affect market behaviour. We observe that moving from 0 to 1 uninformed buyers leads to higher prices in both 2(seller)x2(buyer) and 2x3 markets: the former as predicted under standard preferences, the latter the opposite of the theoretical prediction. Perceptions of fair prices - elicited in the experiment - are a powerful driver of behaviour. For buyers, fair prices correlate with price-responsiveness, which varies systematically across treatments and impacts sellers' pricing incentives. For sellers, fair prices correlate with under-pricing, which also varies systematically across treatments.