Law of One Price Economics Experiment
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Law of One Price Economics Experiment

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Law of One Price Economics Experiment Law of One Price Economics Experiment Presentation Transcript

  • Law of One Price Economics Experiment Economics Experiment
    • Keith Salas and Sean Lynam
  • Our Question:
    • Does the law of one price hold on Ebay?
  • 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
  • Ebay
    • Everybody knows what Ebay is
  • 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
  • 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
  • Ebay Love
    • Trying to imitate Ebay
      • Lots of auctions for the same products starting and stopping
  • Round 1 3 3 3 3 2 2 2 2 5 5 5 5x 1 1 1 4 4 4 4
  • Round 1 Results
  • Round 2 3 3 3 3 6 2 2 2 2 1 1 1 1 4 4 4
  • Round 2 Results
  • Round 3 4 4 7 7 7 2 2 2 5 5 5 8 8x 1 1 3 3 3 6 6 6
  • Round 3 Results
  • Round 4 3 3 3 2 2 2 4 1 1 1 1 1
  • Round 4 Results
  • Findings and Interpretations
    • 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
  • 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
  • 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
  • If we had to do it again...