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Only Paul Could Go To Changchun

PQ Strategies in Monopolistic Competition: Some Insights from the Lab 

9/10/2016

 
Here.

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 that subjects’ behavior is well described by learning heuristics. 


From:

Tiziana Assenza
Universita Cattolica del Sacro Cuore

Jakob Grazzinia 
Universita Cattolica del Sacro Cuore

Cars Hommesb
University of Amsterdam

Domenico Massarob 
​University of Amsterdam
​

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