State dependent price setting rules under implicit thresholds: An experiment

How firms make their pricing decisions is a fundamental question of macroeconomics. We use a laboratory experiment to examine individual choices in a price updating task that provide insight into how well state dependent models reflect behavior. We find that in general subjects behave as if they rec...

Full description

Saved in:
Bibliographic Details
Published inJournal of economic dynamics & control Vol. 68; pp. 17 - 44
Main Authors LeBlanc, Justin D., Civelli, Andrea, Deck, Cary, Bregu, Klajdi
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.07.2016
Elsevier Sequoia S.A
Subjects
Decision making
Dynamic pricing
Laboratory experiments
Macroeconomics
Price regulations
Price rigidity
State dependent models
Studies
Price rigidity
D21
E30
D03
Dynamic pricing
C91
Laboratory experiments
State dependent models
Online AccessGet full text
ISSN0165-1889
1879-1743
DOI10.1016/j.jedc.2016.04.004

Cover

More Information
Summary:How firms make their pricing decisions is a fundamental question of macroeconomics. We use a laboratory experiment to examine individual choices in a price updating task that provide insight into how well state dependent models reflect behavior. We find that in general subjects behave as if they recognize the importance of a state dependent pricing strategy, but they are unable to ascertain this threshold with precision and they also exhibit a substantial degree of time dependence. As a result, they update prices too frequently, and perform statistically significantly fewer real effort profit-generating tasks than theoretically optimal under full state dependence, which results in statistically significantly lower profits as well.
Bibliography:SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 14
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2016.04.004