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Experimental economics summary paper - Essay Example

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Summary of the article: The objectives of this study are to examine the applicability and accuracy of the textbook model as applied to auction markets. The authors of the article hoped that by studying the implications of price control in simple control settings, the results may be applied to more sophisticated markets…
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Experimental economics summary paper
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Experimental economics summary paper

Each market involved a series of trading periods in which market participants were free to buy and sell. The institutions being examined are a series of price ceilings and price controls. The study would focus on the following three aspects of market behavior: price levels and market volumes, market responses to institutional modifications, and efficiency. The experiment led to two major results and a conjecture. First market behavior under price controls is more closely approximated by the competitive model than by the focal point model. Secondly market under price controls exhibit behavioral regularities that are not included in standard analysis. Four of those regularizes are: a) controls at the competitive equilibrium cause market to diverge from the competitive equilibrium; b) removal of nonbinding control induces changes in market prices; c) inefficiencies induced by are greater than those predicted by standard application; d) adjustment of prices when biding controls are removed appeared to be involved an initial discontinuity or jump rather than a continuous movement. The results of the article can be summarized in that the familiar partial equilibrium model works remarkably well to describe laboratory auction market behavior in the presence of price controls and when price controls are binding. ... Read More
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