Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS)
Resumen
We investigate nominal illusion in experimental duopoly markets in which firms choose first a market and then compete in prices. Markets are equivalent in real terms and only differ in the currency the price competition is run under. Our experimental results show a positive, persistent and monotone effect of the nominal exchange rate on prices. We introduce a simple equilibrium model based on invariant grids and nominal illusion. The model is consistent with the comparative statics observed in the experiment, it predicts well nominal and real price distributions across markets, and is consistent with more than 90% of the symmetric price profiles.
