Market institutions, prices and distribution of surplus: a theoretical and experimental investigation

Nejat Anbarci and Nick Feltovich

We examine three market institutions using theory and experiment. Under "posting", sellers post non-negotiable prices, seen by buyers who then choose whom to visit. Under "haggling", prices are not posted, but emerge via bilateral negotiation or bidding. Under "flexible pricing", prices are posted but are flexible upwards or downwards (as under haggling). Theoretical predictions for sellers' posted prices and buyers' visit choices - and outcome variables like efficiency and profits - will therefore depend on how agents bargain and bid. Observed market performance deviates from standard-theory predictions in systematic ways. A modified theory that accounts for more realistic bargaining and bidding behaviour has some success at improving characterisation of observed behaviour.

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