An Experimental Comparison of News Vending and Price Gouging

The newsvendor problem is a workhorse model in operation management research. We introduce a related game that operates in the price dimension rather than the inventory dimension: the price gouging game. Using controlled laboratory experiments, we compare news vending and price gouging behavior. We replicate the standard pull-to-center effect for news vending and find that the equivalent pattern occurs with price gouging. Further, we find that the pull-to-center is asymmetric both for newsvendors and price gougers. More broadly, the experimental results reveal that choices are similar across the theoretically isomorphic games, suggesting that observed behavior in newsvendor experiments is representative of a broader class of games and not driven by the operations context that is often used in newsvendor experiments. Finally, we do not find evidence that behavior in these games is systemically affected by sex, risk attitude, or cognitive reflection

Experimenting with Behavior Based Pricing

Many purchases of differentiated goods are repeated, giving sellers the opportunity to engage in price discrimination based upon the shopper’s previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers. Recent theoretical work suggests that loyalty discounts are likely to be implemented when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise repeat buyers can be expected to pay the same or more than new buyers. This paper reports the results of a series of controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies, seller profit and total cost to consumers. Absent price pre-commitments, sellers in the lab engage in poaching when it is optimal to do so, but the ability to pre-commit leads to prices being relatively more favorable to loyal customers. Customer poaching increases seller profit and increases total consumer costs in the case of stable consumer preferences without price pre-commitment

Comparing a Risky Choice in the Field and Across Lab Procedures

Controlled laboratory experiments have become a generally accepted method for studying economic behavior, but there are two issues regarding the reliability of such work. The first pertains to the ability to generalize experimental results outside the laboratory. The second pertains to the impact the payment procedure has on observed behavior. This paper adds empirical insight into both issues. Using data from the promotional campaign of a bank and a laboratory experiment that closely mimics the same decision, we find similar levels of risk taking controlling for gender and age. We also compare behavior on this same risky choice across three distinct experimental payoff procedures: a single salient choice as in the field, multiple responses for similar choices with one selected at random for payment, and a single salient choice that has only a small probability of being implemented. We find nearly identical behavior across these three payment procedures

Output sustainability to exogenous and endogenous shocks: evidence from emerging economies

This paper studies the impact of exogenous and endogenous shocks (exogenous shock is used interchangeably with external shock; endogenous shock is used interchangeably with domestic shock) on output fluctuations in post-communist countries during the 2000s. The first part presents the analytical framework and formulates a research hypothesis. The second part presents vector autoregressive estimation and analysis model proposed by Pesaran (2004) and Pesaran and Smith (2006) that relates bank real lending, the cyclical component of output and spreads and accounts for cross-sectional dependence (CD) across the countries. Impulse response functions show that exogenous positive shock lead to a drop in output sustainability for 9 over 12 Central Eastern European countries and Russia, when the endogenous shock is mild and ambiguous. Moreover, the effect of exogenous shock is more significant during the crises. Variance decompositions show that exogenous shock in the aftermath of crisis had a substantial impact on economic activity of emerging economies.output sustainability; exogenous shock; endogenous shock; United States; USA; corporate bonds; bond spread; infinite vector autoregression; emerging economies; global crises; financial crises; external shock; domestic shock; output fluctuations; post-communist countries; Hashem Pesaran; Ronald Smith; banks; banking; real lending; cyclical components; cross-sectional dependence; impulse response functions; positive shock; Eastern Europe; Russia; Russian Federation; mild shock; ambiguous shock; variance decompositions; economic activity; Poland; Czech Republic; Slovakia; Hungary; Lithuania; Latvia; Estonia; Slovenia; Romania; Bulgaria; Ukraine; sustainable development; sustainable economy.

Output sustainability to exogenous and endogenous shocks: evidence from emerging economies

This paper studies the impact of exogenous and endogenous shocks (exogenous shock is used interchangeably with external shock; endogenous shock is used interchangeably with domestic shock) on output fluctuations in post-communist countries during the 2000s. The first part presents the analytical framework and formulates a research hypothesis. The second part presents vector autoregressive estimation and analysis model proposed by Pesaran (2004) and Pesaran and Smith (2006) that relates bank real lending, the cyclical component of output and spreads and accounts for cross-sectional dependence (CD) across the countries. Impulse response functions show that exogenous positive shock lead to a drop in output sustainability for 9 over 12 Central Eastern European countries and Russia, when the endogenous shock is mild and ambiguous. Moreover, the effect of exogenous shock is more significant during the crises. Variance decompositions show that exogenous shock in the aftermath of crisis had a substantial impact on economic activity of emerging economies

Bringing a Natural Experiment into the Laboratory: The Measurement of Individual Risk Attitudes

Controlled laboratory experiments have become a generally accepted method for studying economic behavior, but there are two issues that regularly arise with such work. The first pertains to the ability to generalize experimental results outside the laboratory. While laboratory experiments are typically designed to mimic naturally occurring situations, ceteris paribus comparisons are rare. Using data from a promotional campaign by a bank and a matching laboratory experiment, we find similar patterns of risk taking behavior controlling for gender and age. The second issue pertains to the impact that the payment procedure in an experiment has on observed risk taking behavior. Specifically, we compare behavior on a risk taking task where that is the only task and payment is assured, where it is one of several similar tasks of which one will be randomly selected for payment, and where it is the only task but there is only a small probability of receiving payment. We find similar behavior across these three payment procedures

Experimenting With Purchase History Based Price Discrimination

Many purchases of differentiated goods are repeated, giving sellers the opportunity to engage in price discrimination based upon the shopper\u27s previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers. Recent theoretical work suggests that loyalty discounts can be profitable to sellers when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise returning customers can be expected to pay the same or more than new buyers. This paper reports behavior in controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies. The results generally support the comparative static predictions of the theoretical model. When customer preferences are fixed over time, sellers attempt to lure customers from their rival. Price pre-commitment for repeat shoppers when buyer preferences vary over time resulted in modest loyalty pricing, but the discounts are not as prevalent as predicted as sellers rarely price below cost. Behaviorally, price pre-commitment to loyal customers is found to reduce prices overall