Chamberlin's Experimental Markets Revisited: A Computerized Journey

A bstract . Professor Edward Hastings Chamberlin conducted many experiments about imperfect markets at Harvard University, using his students as bargaining agents. He found that transaction volumes ( i.e. number of units sold) were consistently higher in these “imperfect” markets than would have been the case if the markets were “perfect.” This he found surprising but explainable. He also found, however, that the average transaction prices were consistently lower than their equivalents in perfect markets. That he found both surprising and unexplainable. He finally assumed that the biased behavior of his students caused that phenomenon. In the present study, his experiments were replicated but the alleged bias was eliminated by replacing the students with a computer which was programmed to deal impartially and objectively with all buyers and sellers. On completion of the simulation, it was found that the transaction volumes were indeed significantly higher than their perfect market equivalents, but average prices were very comparable to their counterparts in perfect markets. Thus Chamberlin's hypothesis was correct on both counts. This verification of the suspect results we consider very significant, because they may have far reaching effects on welfare economics. As more ‘transactions may be completed at essentially the same average price, perhaps the efficiency of these markets could be improved by making these markets less perfect rather than less imperfect.