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History's Role in Coordinating Decentralized Allocation Decisions

Donald J. Meyer, John B. Van Huyck, Raymond C. Battalio and Thomas R. Saving
Journal of Political Economy
Vol. 100, No. 2 (Apr., 1992), pp. 292-316
Stable URL: http://www.jstor.org/stable/2138609
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
History's Role in Coordinating Decentralized Allocation Decisions
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Abstract

What causes individual suppliers to allocate goods in such a way that the aggregate allocation satisfies the law of one price? A satisfactory answer to this question must confront two related problems: Equal net prices at all allocations provide no information to suppliers about the quantity to deliver to a specific location, and strategic uncertainty makes an observed violation of the law of one price an unreliable indicator of a profit opportunity. This paper develops a simple analytical framework to formalize these two problems, reviews some solutions found in the literature, and reports laboratory evidence on how people solve them. In addressing these issues, we focus on the role historical prices play in coordinating decentralized allocation decisions.

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