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Keep It Down: An Experimental Test of the Truncated k-Double Auction

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Author Info

  • Doyon, Maurice
  • Rondeau, Daniel
  • Mbala, Richard

Abstract

The introduction of a centralized institution for trading production rights in quota-regulated agricultural sectors can dramatically improve the flow of information among market participants and increase efficiency. On the other hand, prevailing conditions in these small markets can provide sellers with a market advantage, yielding high quota prices that impose important financial costs on quota holders and limit the entry of new producers into the industry. In this paper, we modify the normal allocation rule of the k-double auction (kDA) to counter thin market conditions and to favor buyers who bid low prices. In laboratory experiments, we test the “truncated†kDA (T-kDA) against a regular kDA for its ability to affect buyer and seller behavior and decrease equilibrium prices, and assess how it impacts efficiency. The results show that the T-kDA significantly lowers the equilibrium price and results in moderate efficiency losses. Most importantly, the T-kDA effectively counters the market power of oligopolists when demand far outstrips supply.

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Bibliographic Info

Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 39 (2010)
Issue (Month): 2 (April)
Pages:

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Handle: RePEc:ags:arerjl:90829

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Web page: http://www.narea.org/
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Related research

Keywords: k-double auction; experimental economics; truncated; efficiency; commodity market; Agribusiness; Industrial Organization; Institutional and Behavioral Economics;

References

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  1. Van Boening, Mark V. & Williams, Arlington W. & LaMaster, Shawn, 1993. "Price bubbles and crashes in experimental call markets," Economics Letters, Elsevier, vol. 41(2), pages 179-185.
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Cited by:
  1. Messer, Kent D. & Murphy, James J., 2010. "FOREWORD: Special Issue on Experimental Methods in Environmental, Natural Resource, and Agricultural Economics," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, Northeastern Agricultural and Resource Economics Association, vol. 39(2), April.
  2. Rajsic, Predrag & Fox, Glenn, 2012. "Quota Prices as Indicators of Comparative Advantage in Supply Managed Industries," Working Papers, Canadian Agricultural Trade Policy Research Network 142370, Canadian Agricultural Trade Policy Research Network.

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