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Market Stability: Backward Bending Supply in a Laboratory Experimental Market

Plott, Charles R. (1999) Market Stability: Backward Bending Supply in a Laboratory Experimental Market. Social Science Working Paper, 1067. California Institute of Technology , Pasadena, CA. (Unpublished)

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The paper investigates the stability properties of markets with backward bending supply curves. Parameters are chosen so that the two classic models of price dynamics, the Walrasian model and the Marshallian model, give opposite predictions. The results are: (1) market instability can be observed; (2) in the backward bending case stability is captured by the Walrasian model and the Marshallian model of dynamics is rejected. Previous experiments have demonstrated that the Marshallian model works in the forward falling case. Thus, which theory of dynamics is appropriate for a market depends upon the underlying reasons for demand and supply shapes.

Item Type:Report or Paper (Working Paper)
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Additional Information:Published as Plott, C.R. (2000). Market stability: backward‐bending supply in a laboratory experimental market. 1999 Presidential address Western Economic Association. Economic Inquiry, 38(1), 1-18.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:1067
Record Number:CaltechAUTHORS:20170810-150248660
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80251
Deposited By: Jacquelyn Bussone
Deposited On:10 Aug 2017 22:27
Last Modified:03 Oct 2019 18:28

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