Consumer search with correlated prices

The treatment variation is the probability that the price is set at 70.

2023-05-12

2023-06-30

Our main treatment measures are sellers posted prices and buyers' purchase prices. We also measure buyers' search decision.

To allow for learning, we will focus on observations from the latter half of the experiment.

The experiment consists of 40 identical and independent games. Subjects are assigned a role as either a seller or a byuer. These roles remain fixed throughout the experiment. In each game, two sellers and two buyers are randomly matched to form a market.

The game is explained under "Experimental Design (hidden)".

In the experiment payoffs are given in Experimental currency units (ECU).

At the end of the experiment, two games will be picked at random to determine earnings from this experiment. Earnings from the experiment will be the sum of ECUs earned in these two games plus 40 ECU. Earnings will be converted to NOK and transferred using Vipps. Vipps is a payment service that can be downloaded as a mobile phone application.

The treatment variation is the probability, $P_{r}$, that the price is set at 70. The random variable is independent and identically distributed.

The experiment consists of three treatments:
- Treatment 1 (T_{1}) : $P_{r}=0$
- Treatment 2 (T_{2}): $P_{r}=0.1$
- Treatment 3 (T_{3}): P_{r}=0.2
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We use blocks of 8 subjects. Subjects stay within blocks, and unique subjects are used in all treatments. In our analysis we regard average behavior within blocks as independent observations. We plan to collect 6 blocks per treatment.

Each game progresses as follows:

• The sellers’ decision: Sellers either decide on a price themselves, or it it set
for them by the computer.
– When sellers decide on a price themselves, each seller simultaneously sets
a price between 0 ECU and 100 ECU.
– When the price is set by the computer, the price is set to 70 ECU for both
sellers in the market.
– The probability that the price is set by the computer varies across treat-
ments.
– The probability draw is independent across games.
– Buyers do not know whether the price is set by the computer or by the
sellers.

• The buyers’ decision:
– A buyer observes the price of one of the sellers in his/her market, while
the other buyer observes the price of the other seller.
– Buyers can choose to purchase at the observed price or to pay a cost of
20 ECU to also observe the price of the other seller in the market.
– If a buyer pays to observe the price of the other seller, the buyer purchases
from the other seller only if that seller has a lower price.

• Additional sales: The seller with the lowest price in a market will make
two additional sales. These additional sales do not depend on the decisions of
buyers nor do they affect buyers ́ payoffs.
If both sellers have the same price, each seller sells to one buyer and make one
additional sale.

After each game, sellers and buyers receive feedback on prices set and ECUs earned.
Buyers are not informed about whether the price is set by the computer or by the
sellers.

Random assignment of subjects into treatments. Subjects are drawn from the population of students that have signed up for lab-experiments at the BI Norwegian Business School.

Subjects are randomized into treatments, and into blocks within each treatment. We use blocks of subjects within treatments as our unit of observation.

No

No clusters.

We plan to have 8 subjects in each block and 6 blocks per treatment. That is, we plan to include 8x6x3=144 subjects.

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