Title

Revisiting Marshallian versus Walrasian Stability in an Experimental Market

Abstract

We study dynamics in pit market trading by a laboratory experiment. Our exchange economy model contains two types of consumers and two kinds of commodities, and three competitive equilibria exist. The two equilibria with the lowest, and the highest relative prices are beneficial for one type of the consumers, and the intermediate price gives an equitable allocation. The theory of Walrasian tatonnement dynamics predicts that relative prices diverge from the intermediate equilibrium towards the lowest equilibrium or the highest equilibrium depending on initial prices. On the other hand, Marshallian quantity adjustment process leads the total supplied volume to the intermediate equilibrium only regardless of initial states. In order to examine how robust the equilibrium selection is, we conducted a manual experiment of pit market trading with different combinations of ethnicities of subjects in Kenya. Our result shows strong support for the convergence to the intermediate equilibrium, which is unstable in Walrasian tatonnement dynamics and is stable in Marshallian quantity adjustment process.

Keywords

Marshallian stability, Walrasian stability, Experiments, Pit market, Kenya

JEL Classification

C92, D51

Inquiries

Junyi SHEN
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059
and
School of Economics, Shanghai University, China

Ken-Ichi SHIMOMURA
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Takehiko YAMATO
Department of Social Engineering, Graduate School of Decision Science and Technology,
Tokyo Institute of Technology

Tokinao OHTAKA
Department of Social Engineering, Graduate School of Decision Science and Technology,
Tokyo Institute of Technology

Kiyotaka TAKAHASHI
Department of Social Engineering, Graduate School of Decision Science and Technology,
Tokyo Institute of Technology