CCP Seminar: An Experimental Analysis of Pricing-to-Market and Money Illusion
January 23, 2013 Leave a comment
The CCP seminar series continues on Friday 25th January with Enrique Fatas (CCP and ECO) presenting his research on ‘An Experimental Analysis of Pricing-to-Market and Money Illusion‘ in collaboration with Guillermo Mateu (LESSAC, Burgundy School of Business) and Antonio J Morales (University of Malaga). An abstract for his seminar can be found below.
We experimentally analyse pricing behaviour in segmented international markets. Experimental firms first decide in which foreign market to trade and then compete on prices. Markets are equivalent in real terms and only differ in the currency the price competition is run under. We find that prices increase with the nominal exchange rate (e.g., pricing-to-market). We develop a coarse pricing grids model in which boundedly rational agents adjust their prices to different nominal exchange rates. The equilibrium predictions of the model capture well both average treatment effects and the distribution of prices observed in the laboratory.