Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/170608
Authors: 
Assenza, Tiziana
Grazzini, Jakob
Hommes, Cars
Massaro, Domenico
Year of Publication: 
2014
Series/Report no.: 
Working Paper, Dipartimento di Economia e Finanza (DISCE), Università Cattolica del Sacro Cuore 11
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.
Subjects: 
Laboratory Experiments
Price-Quantity Competition
Monopolistically Competitive markets
Document Type: 
Working Paper

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