Group identity in markets

• Published in: International journal of industrial organization Vol. 29; no. 1; pp. 104 - 115
• Main Authors: Li, Sherry Xin, Dogan, Kutsal, Haruvy, Ernan
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.01.2011; Elsevier; Elsevier Sequoia S.A
• Series: International Journal of Industrial Organization
• Subjects: Bargaining; Economic behaviour; Experiments; Group identity; Group identity Experiments Markets Bargaining; Market; Market theory; Markets; Markt; Oligopoly; Perception; Preferences; Prices; Pricing; Social identity; Social networks; Soziale Gruppe; Studies; Test; D63; Bargaining; Markets; C91; Experiments; D61; L14; L13; Group identity
• ISSN: 0167-7187; 1873-7986
• DOI: 10.1016/j.ijindorg.2010.04.001

We present a laboratory experiment that measures the effects of group identity—one's perceived membership in social groups—on market transactions in an oligopoly market with a few sellers and buyers. We artificially induce group identity using art preferences and college majors in different treatments, respectively. Subjects are randomly assigned into the roles of buyers and sellers and interact repeatedly. We find that the presence of groups influences both the selection of trading partners and the determination of prices. All else equal, sellers are more likely to make offers to ingroup buyers, and the buyers are more likely to accept offers from ingroup sellers. There are considerable intergroup price differentials with the outgroup sellers charging a lower price than the ingroup sellers.