law of one price economics experiment keith salas and sean lynam
Post on 20-Dec-2015
217 views
TRANSCRIPT
![Page 1: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/1.jpg)
Law of One PriceEconomics Experiment
Keith Salas and Sean Lynam
![Page 2: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/2.jpg)
Our Question:
•Does the law of one price hold on Ebay?
![Page 3: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/3.jpg)
Law of One Price
•“In an efficient market all identical goods must have only one price.”
•Defines a market as a geographical area, within which the same things are sold for the same price at the same time, allowance being made for transportation cost
![Page 4: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/4.jpg)
Ebay
•Everybody knows what Ebay is
![Page 5: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/5.jpg)
Why Should the Law of One Price Hold on
Ebay?•All new products are the same
•Only difference is S&H
•Buyers have similar valuations for products
•Very competitive, many buyers and sellers
![Page 6: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/6.jpg)
The Setup•4 Sets of 4-8 auctions, 1-5 minutes
in length
•All buyers have same valuation
•Auctions come and go at different times
•Buyers don’t know when a new auction will enter, but do know when it ends
![Page 7: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/7.jpg)
Ebay Love
•Trying to imitate Ebay
•Lots of auctions for the same products starting and stopping
![Page 8: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/8.jpg)
Round 1
3 3 3 3
2 2 2 2 5 5 5 5x
1 1 1 4 4 4 4
![Page 9: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/9.jpg)
Round 1 Results
![Page 10: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/10.jpg)
Round 2
3 3 3 3 6
2 2 2 2
1 1 1 1 4 4 4
![Page 11: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/11.jpg)
Round 2 Results
![Page 12: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/12.jpg)
Round 3
4 4 7 7 7
2 2 2 5 5 5 8 8x
1 1 3 3 3 6 6 6
![Page 13: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/13.jpg)
Round 3 Results
![Page 14: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/14.jpg)
Round 4
3 3 3
2 2 2 4
1 1 1 1 1
![Page 15: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/15.jpg)
Round 4 Results
![Page 16: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/16.jpg)
Findings and Interpretations
![Page 17: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/17.jpg)
•Law of one price did not hold in our experiment
•The first auction of each round was very close to the valuations of the buyers
•Fewer available auctions = more bidders in each auction = higher sale prices
Findings
![Page 18: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/18.jpg)
Findings Part Deux
•Auctions that started and ended in the middle of the rounds tended to have lesser sale prices
•Got lost in the mix
![Page 19: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/19.jpg)
Interpretations
•Ebay sellers: when to end auctions?
•High traffic versus low traffic of Ebay users
•High traffic: supply greater than demand
•Low traffic: demand greater than supply
![Page 20: Law of One Price Economics Experiment Keith Salas and Sean Lynam](https://reader035.vdocuments.net/reader035/viewer/2022062407/56649d485503460f94a2309a/html5/thumbnails/20.jpg)
If we had to do it again...