Demand Shocks, Advance Production, and Market Power: Some Lessons about Markets from the Laboratory

This paper summarizes some recent research pertaining to laboratory markets, and then discusses some of the implications of this research for applied economics and policy. Three results are discussed: (a) In one-sided markets where sellers post prices price-tracking response to demand shocks is very poor; (b) Despite the prominence of the Cournot model as a centerpiece for applied research, it is very difficult to construct an environment where Cournot outcomes are observed; (c) Market power, or the capacity of sellers to unilaterally deviate from the competitive prediction, is a prominent characteristic in short run price-setting contexts.