| Summary: | This thesis presents three independent essays that reassess common simplifying assumptions of behaviour of the main micro economic agents: individuals, consumers and firms. The first chapter considers whether individuals' reciprocal preferences can be approximated by a preference for equality. Analysing subjects' behaviour in a bargaining game experiment provides evidence that people are willing to increase inequality between players by (i) sacrificing payoffs even when opponents are not punished and (ii) eliminating opponents' payoffs at no cost, even if opponents have smaller shares of the surplus. The second chapter reconsiders whether firms can profitably conceal their prices if some consumers are unable to form correct expectations of market prices. A theoretical model shows that the ability to conceal prices but still attract naIve consumers dampens competition and allows prices to be set above marginal cost. It suggests that the European Commission was correct to pass regulations that require airlines to set prices inclusive of taxes, fees and charges, because alternative policies of educating a proportion of naIve consumers to become sophisticated or assisting consumers to search the market more effectively could increase prices in some situations. The final chapter considers the implication of firms that maintain collusion through price matching punishments, as opposed to Nash reversion. A theoretical model shows that firms find it difficult to set higher prices during a cost shock, contrary to the conventional wisdom. However, if firms are credibly committed to surcharges for the shock's duration they are able to set higher supracompetitive prices.
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