Cason, T., Friedman, D. and Wagener, F. (2005). The dynamics of price dispersion, or Edgeworth variations Journal of Economic Dynamics and Control, 29(4):801--822.
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Affiliated author
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Publication year2005
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JournalJournal of Economic Dynamics and Control
Hypotheses on the dynamics of dispersed prices are extracted from computer simulations and theory, and are tested using laboratory data. As predicted in some variations of the Edgeworth hypothesis, the data exhibit a significant cycle. Relative to the unique stationary distribution, the empirical distribution of posted prices has excess mass in an interval that declines until it approaches the lower boundary of the stationary distribution, then jumps upward and the downward cycle resumes. The amplitude of the cycle seems fairly constant over the longer experimental sessions. A hybrid of gradient dynamics and logit dynamics seems to best reproduce the observed dynamics.