Chapter 7 Mixed Strategy Nash Equilibrium Predictions as a Means of Organizing Behavior in Posted-Offer Market Experiments

Market power arises in many posted-offer markets and drives a distinction between the competitive prediction and the Nash equilibrium for the market viewed as a stage game. Pricing patterns in such markets tend to be characterized by Edgeworth cycles that deteriorate as the sessions progress. The amplitude and frequency of the cycles are sensitive to design and procedural details, and vary considerably from experiment to experiment. Although persistent serial correlation in pricing proscribe any direct test of static Nash mixing predictions, rough correspondence between the central moments of predicted and observed densities has been observed in a variety of different instances. However, the persistent and very prominent deviations observed in an asymmetric design suggests that Nash mixing predictions do not uniformly organize behavior well. The circumstances under which mixing predictions may organize outcomes well merits further investigation.