Fairness, Price Stickiness, and History Dependence in Decentralized Trade

Arbeitspapier

The paper investigates price formation in a decentralized market with random matching. Agents are assumed to have subdued social preferences: buyers, for example, prefer a lower price to a higher one but experience reduced utility increases below a reference price which serves as a common fairness benchmark. The strategic equilibrium reflects market fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price benchmark. Prices may be sticky around very different reference levels in markets with otherwise identical fundamentals. The implied history dependence turns out to be mitigated rather than exacerbated by friction.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BGPE Discussion Paper ; No. 68

Classification and Topics

• Classification: Wirtschaft ; Bargaining Theory; Matching Theory ; Market Structure and Pricing: Other ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement ; Design of Experiments: Laboratory, Individual
• Subject: random matching ; price stickiness ; social preferences ; history dependence ; reference dependence ; Preisrigidität ; Marktmechanismus ; Matching ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Korth, Christian ; Napel, Stefan
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
• (where): Nürnberg
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/73458