01 gennaio 2014

T. Assenza, J. Grazzini, C. Hommes, D. Massaro

ABSTRACT

We present results from 50-rounds experimental markets in which rms 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 rms
in monopolistic competition. In the implemented treatments subjects are asked to
make both production and pricing decisions given di erent information sets. We
investigate how subjects decide on prices and quantities in response to signals from
the rms' internal conditions, i.e., individual pro ts, excess demand, and excess
supply, and the market environment, i.e., aggregate price level. We nd persis-
tent heterogeneity in individual behavior, with about 46% of market followers, 28%
pro t-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.

KEYWORDS: Market experiments; Price-Quantity competition.

JEL Codes: TBD

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