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The Economics of Open Air Markets

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  • John A. List

Abstract

Despite their current prevalence and historical significance, little is known about the economics of open air markets. This paper uses open air markets as a natural laboratory to provide initial insights into the underlying operation of such markets. Using data on thousands of individual transactions gathered from May 2005- August 2008, I report several insights. First, the natural pricing and allocation mechanism in open air markets is capable of approaching full efficiency, even in quite austere conditions. Yet, a second result highlights the fragility of this finding: allowance of explicit seller communication frustrates market efficiency in a broad array of situations. Making use of insights gained from a “mole” in the marketplace, a third set of results revolves around economic questions pertaining to collusive arrangements that are otherwise quite difficult to investigate. Overall, I find data patterns that are consistent with certain theoretical predictions, as the evidence suggests that i) cheating rates increase as the coalition is expanded, ii) sellers cheat less when they have collusive arrangements in several spatially differentiated markets, and iii) sellers cheat more when they are experiencing periods of abnormally high profits. These results follow from a combination of insights gained from building a bridge between the lab and the naturally-occurring environment. By doing so, the study showcases that in developing a deeper understanding of economic science, it is desirable to take advantage of the myriad settings in which economic phenomena present themselves.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15420.

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Date of creation: Oct 2009
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Handle: RePEc:nbr:nberwo:15420

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References

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  1. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
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Cited by:
  1. Vázquez-Maguirre, Mario & Hartmann, Andreas M., 2013. "Nonmarket strategies of media enterprises in the Mexican television industry," Journal of Business Research, Elsevier, vol. 66(10), pages 1743-1749.
  2. Omar Al-Ubaydli & John A. List, 2013. "On the Generalizability of Experimental Results in Economics: With a Response to Commentors," CESifo Working Paper Series 4543, CESifo Group Munich.
  3. Bradley J. Ruffle, 2013. "When Do Large Buyers Pay Less? Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 108-137, 03.
  4. Timm Gudehus, 2010. "Logik des Marktes, Marktordnung, Marktverhalten und Marktergebnisse," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(5), pages 601-629, October.

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