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Public Versus Private Exchanges

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  • Kirchsteiger, G.
  • Niederle, M.
  • Potters, J.J.M.

    (Tilburg University, Center for Economic Research)

Abstract

We study the structure of markets when traders are given the opportunity to create their own market, as on the internet.On the internet, public exchanges have in many cases been replaced by private exchanges.We use experiments to investigate possible reasons for the failure of public exchanges.In our experimental markets, when traders make an offer, they decide whom to inform about the offer.Participants typically inform all traders on the other side of the market, but not on their own side, resulting in a private, not a public exchange.This private exchange leads to the same outcomes in terms of prices and efficiency as a double auction.When we impose transaction costs on the buyers, only the sellers make private offers, which results in an inefficient market. When we provide incentives for sellers to inform each other, most of the sellers reveal a strict preference to hide offers from rivals.However, when sellers do share price information, they attain a higher price and benefit collectively.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-101.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:2001101

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Related research

Keywords: market structure; information; efficiency;

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References

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  1. David Lucking-Reiley & Daniel F. Spulber, 2001. "Business-to-Business Electronic Commerce," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 55-68, Winter.
  2. Steven Gjerstad & John Dickhaut, 2003. "Price Formation in Double Auctions," Microeconomics 0302001, EconWPA.
  3. Grether, David M & Plott, Charles R, 1984. "The Effects of Market Practices in Oligopolistic Markets: An Experimental Examination of the Ethyl Case," Economic Inquiry, Western Economic Association International, vol. 22(4), pages 479-507, October.
  4. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
  5. Easley, David & Ledyard, John., . "Theories of Price Formation and Exchange in Double Oral Auctions," Working Papers 611, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. James T. Hong & Charles R. Plott, 1982. "Rate Filing Policies for Inland Water Transportation: An Experimental Approach," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 1-19, Spring.
  7. Friedman, Daniel, 1991. "A simple testable model of double auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 15(1), pages 47-70, January.
  8. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 322.
  9. Gode, Dhananjay K & Sunder, Shyam, 1997. "What Makes Markets Allocationally Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 603-30, May.
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Citations

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Cited by:
  1. Eriksson, Tor & Villeval, Marie Claire, 2012. "Respect and relational contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 286-298.
  2. Brown, Martin & Falk, Armin & Fehr, Ernst, 2002. "Contractual Incompleteness and the Nature of Market Interactions," CEPR Discussion Papers 3272, C.E.P.R. Discussion Papers.
  3. Kugler, Tamar & Neeman, Zvika & Vulkan, Nir, 2006. "Markets versus negotiations: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 56(1), pages 121-134, July.
  4. Sang Lee & Seong-bae Lim, 2007. "Factors influencing suppliers’ participation in private electronic markets," Service Business, Springer, vol. 1(1), pages 41-62, March.
  5. David V. Budescu & Boris Maciejovsky, 2004. "The Effect of Monetary Feedback and Information Spillovers on Cognitive Errors: Evidence from Competitive Markets," Papers on Strategic Interaction 2004-32, Max Planck Institute of Economics, Strategic Interaction Group.

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