Directed search, coordination failure and seller profit: an experimental comparison of posted pricing with single and multiple prices

Nejat Anbarci and Nick Feltovich

We use a human-subjects experiment to examine market outcomes in two related settings involving posted pricing by firms and and directed search by consumers. Sellers simultaneously post asking prices for a single indivisible good; buyers observe the prices and simultaneously choose which firm to visit. In the one-price model, each firm posts a single asking price. In the two-price model, each posts a menu of prices: a "single-buyer" price (applicable when exactly one buyer visits), and a "multi-buyer" price (applicable when multiple buyers visit). While the multi-buyer price allows sellers the possibility of taking advantage of local market power, our experimental results - based on a 2x2 (2 buyers, 2 sellers) market - suggest that multi-buyer prices can actually be lower than either single-buyer prices or prices in the one-price treatment. We also find that allowing a separate multi-buyer price has no apparent effect on seller profits, and leads to a small increase in frictions. Finally, observed price dispersion is higher in the two-price treatment than in the one-price treatment. A follow-up experiment, using asymmetric 3x2 and 2x3 markets, shows that our main results are robust to giving either buyers or sellers market power.

Paper (PDF)