This award will fund research using a "near continuous time" variant of the standard laboratory implementations of posted-offer markets and repeated oligopoly games. By truncating sharply the duration of decision periods, this near-continuous framework allows for a very considerable expansion of participant decision-profiles. Increasing decision-profiles in this way is not without some parallels to natural posted-offer markets, particularly when making comparisons across trading institutions. Many economists, for example, evaluate posted-offer market performance in light of markets organized under double auction trading rules. But high value items, such as stocks and other financial instruments typically trade in double auction markets, while relatively low value consumer goods more frequently trade in posted-offer markets. In order to match the dollar volume associated with a single representative double auction transaction, many consumer goods sellers may have multiple opportunities to revisit their pricing decisions. More importantly, the expansion of participant decision profiles allowed by this near-continuous framework addresses the common criticism of posted-offer market and oligopoly laboratory results, that insufficient experience with the market or game drives observed disequilibrium behavior.
The PI will conduct a series of four experiments that exploit the longer decision profiles allowed by extensive repetition. They include (a) an examination of a pair of "stylized facts" regarding the response of posted-offer markets to changes in underlying supply and/or demand conditions; (b) an experiment designed to examine interactions between "pure numbers" and "market power" effects in a Bertrand-Edgeworth pricing game; (c) a further examination of the drawing power of Antitrust Logit Model; and (d) an experiment designed to evaluate the long run stability of outcomes in Cournot games.
Vernon Smith argues that developing new tools that allow for the better empirical examination of theories represents perhaps the most important task in science. This award will fund one such tool. Results of the four investigations described in the proposal will be interesting, regardless of the outcomes. Broadly speaking, if the near-continuous framework eliminates the "stylized facts" that have come to characterize some frequently observed laboratory deviations from competitive and game-theoretic equilibrium predictions, then I will have developed a new platform for evaluating repeated oligopoly games. On the other hand, the persistence of these "stylized facts" in a near-continuous framework would suggest that at least one idiosyncrasy of standard laboratory methods does not drive these "facts", and would thus provide yet further support for the argument that the pertinent theories fail to explain important aspects of behavior.
Experimental research is an ideal way to expose and involve interested undergraduates in the research enterprise. Undergraduate students will participate in this research project as assistants. Exposure of talented undergraduates to the research enterprise in economics is particularly scarce in universities like Virginia Commonwealth University, a racially and ethnically diverse, open access public university without a Ph.D. program in economics.
