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Laboratory Behavior in Spot and Forward Auction Markets

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  • Owen Phillips
  • Dale Menkhaus
  • Joseph Krogmeier
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    Abstract

    Auctions that require advance production increase seller costs because inventories must be held. This cost does not exist in production-to-demand markets for which production follows trading, and sales exactly match quantities produced. Data from laboratory computerized double auction markets show that advance-production prices are significantly higher and quantities traded are significantly lower than they are in production-to-demand auctions. Price convergence patterns show advance-production sellers moving toward 9% higher prices and 22% greater earnings. Copyright Kluwer Academic Publishers 2001

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    File URL: http://hdl.handle.net/10.1023/A:1013269304544
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    Bibliographic Info

    Article provided by Springer in its journal Experimental Economics.

    Volume (Year): 4 (2001)
    Issue (Month): 3 (December)
    Pages: 243-256

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    Handle: RePEc:kap:expeco:v:4:y:2001:i:3:p:243-256

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    Web page: http://www.springerlink.com/link.asp?id=102888

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    Keywords: auctions; advance-production; production-to-demand;

    References

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    1. Noussair, C.N. & Plott, C. & Riezman, R., 1995. "An experimental investigation of the patterns of international trade," Open Access publications from Tilburg University urn:nbn:nl:ui:12-387775, Tilburg University.
    2. Mestelman, Stuart & Welland, Douglas, 1987. "Advance production in oral double auction markets," Economics Letters, Elsevier, vol. 23(1), pages 43-48.
    3. Mestelman, Stuart & Welland, Douglas, 1991. "The effects of rent asymmetries in markets characterized by advance production : A comparison of trading institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 15(3), pages 387-405, May.
    4. Ashenfelter, O. & Currie, J. & Farber, H.S., 1990. "An Experimental Comparison Of Dispute Rates In Alternative Arbritation Systems," Working papers 562, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Mestelman, Stuart & Welland, Deborah & Welland, Douglas, 1987. "Advance production in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 8(2), pages 249-264, June.
    6. Davis, Douglas D., 1999. "Advance production and Cournot outcomes: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 59-79, September.
    7. Phillips, Owen R. & Menkhaus, Dale J., 2001. "Random shocks in experimental spot and forward auction markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(4), pages 545-560.
    8. Mestelman, Stuart & Welland, Douglas, 1988. "Advance Production in Experimental Markets," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 641-54, October.
    9. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 322.
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    Cited by:
    1. Henze, B. & Noussair, C.N. & Willems, Bert, 2011. "Regulation of Network Infrastructure Investments: An Experimental Evaluation," Discussion Paper 2011-019, Tilburg University, Tilburg Law and Economic Center.
    2. Hafalir, Isa E. & Yektas, Hadi, 2010. "Selling Goods of Unknown Quality: Forward versus Spot Auctions," MPRA Paper 19956, University Library of Munich, Germany.
    3. Phillips, Owen R. & Menkhaus, Dale J., 2006. "The Culture of Private Negotiation: Price Drift in Bilateral Bargaining," 2006 Annual meeting, July 23-26, Long Beach, CA 21168, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Nagler, Amy M. & Menkhaus, Dale J. & Bastian, Christopher T. & Ehmke, Mariah D. & Coatney, Kalyn T., 2013. "Subsidy Incidence in Factor Markets: An Experimental Approach," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(01), February.
    5. Phillips, Owen R. & Menkhaus, Dale J., 2010. "The culture of private negotiation: Endogenous price anchors in simple bilateral bargaining experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 705-715, December.
    6. Yakunina, Alla V. & Menkhaus, Dale J. & Phillips, Owen R. & Esipov, Victor E., 2003. "Non-performance risk and transaction costs in laboratory forward and spot markets," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 257-274, June.

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