Pricing and Trust
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Pricing and Trust. / Huck, Steffen; Ruchala, Gabriele K.; Tyran, Jean-Robert.
Cph. : Department of Economics, University of Copenhagen, 2007.Research output: Working paper › Research
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TY - UNPB
T1 - Pricing and Trust
AU - Huck, Steffen
AU - Ruchala, Gabriele K.
AU - Tyran, Jean-Robert
N1 - JEL Classification: C72, C90, D40
PY - 2007
Y1 - 2007
N2 - We experimentally examine the effects of flexible and fixed prices in markets for experience goods in which demand is driven by trust. With flexible prices, we observe low prices and high quality in competitive (oligopolistic) markets, and high prices coupled with low quality in non-competitive (monopolistic) markets. We then introduce a regulated intermediate price above the oligopoly price and below the monopoly price. The effect in monopolies is more or less in line with standard intuition. As price falls volume increases and so does quality, such that overall efficiency is raised by 50%. However, quite in contrast to standard intuition, we also observe an efficiency rise in response to regulation in oligopolies. Both, transaction volume and traded quality are, in fact, maximal in regulated oligopolies
AB - We experimentally examine the effects of flexible and fixed prices in markets for experience goods in which demand is driven by trust. With flexible prices, we observe low prices and high quality in competitive (oligopolistic) markets, and high prices coupled with low quality in non-competitive (monopolistic) markets. We then introduce a regulated intermediate price above the oligopoly price and below the monopoly price. The effect in monopolies is more or less in line with standard intuition. As price falls volume increases and so does quality, such that overall efficiency is raised by 50%. However, quite in contrast to standard intuition, we also observe an efficiency rise in response to regulation in oligopolies. Both, transaction volume and traded quality are, in fact, maximal in regulated oligopolies
KW - Faculty of Social Sciences
KW - markets
KW - price competition
KW - price regulation
KW - reputation
KW - trust
KW - moral hazard
M3 - Working paper
BT - Pricing and Trust
PB - Department of Economics, University of Copenhagen
CY - Cph.
ER -
ID: 384908