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Indiana University Bloomington

Doctoral Programs

1960 Notable

From 1960-2013, we prepared nearly 1,200 men and women
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Journal Articles

Price Dispersion in the Lab and on the Internet: Theory and Evidence

2004, Rand (Bell) Journal of Economics

Michael R. Baye, John Morgan

Abstract

Price dispersion is ubiquitous in settings that closely approximate textbook Bertrand competition. We show that only a little bounded rationality among sellers is needed to rationalize such dispersion. A variety of statistical tests, based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models, suggest that bounded-rationality-based theories of price dispersion organize the data remarkably well. Evidence is also presented to suggest that the models are consistent with data from a leading Internet price comparison site.

Citation

Michael R. Baye and John Morgan, "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Rand Journal of Economics, Vol. 35, No. 3 (Autumn 2004), pp. 446-449.