Huck, S.; Luenser, G.; Tyran, J.-R.; (2008) Pricing and trust. (ELSE Working Papers 245). ESRC Centre for Economic Learning and Social Evolution: London, UK.

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Abstract

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. In monopolies volume increases and so does quality, such that overall efficiency is raised by 50%. Somewhat surprisingly, the same pattern emerges in oligopolies. In fact, across all market forms transaction volume and traded quality are maximal in regulated oligopolies.

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