An Experimental Comparison of News Vending and Price Gouging

Abstract

The newsvendor problem is a workhorse model in operation management research. We introduce a related game that operates in the price dimension rather than the inventory dimension: the price gouging game. Using controlled laboratory experiments, we compare news vending and price gouging behavior. We replicate the standard pull-to-center effect for news vending and find that the equivalent pattern occurs with price gouging. Further, we find that the pull-to-center is asymmetric both for newsvendors and price gougers. More broadly, the experimental results reveal that choices are similar across the theoretically isomorphic games, suggesting that observed behavior in newsvendor experiments is representative of a broader class of games and not driven by the operations context that is often used in newsvendor experiments. Finally, we do not find evidence that behavior in these games is systemically affected by sex, risk attitude, or cognitive reflection