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Author
T. Assenza
J. Grazzini
C. Hommes
D. Massaro
Year
2015
Title
PQ strategies in monopolistic competition: some insights from the lab
Journal
Journal of Economic Dynamics & Control
Volume
50
Pages (from-to)
62-77
Document type
Article
Faculty
Faculty of Economics and Business (FEB)
Institute
Amsterdam School of Economics Research Institute (ASE-RI)
Abstract
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 we find that subjects׳ behavior is well described by learning heuristics.
URL
go to publisher's site
Language
English
Permalink
http://hdl.handle.net/11245/1.432408

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