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An Experimental Economics Approach To Analyzing Price Discovery In Forward And Spot Markets

  • Krogmeier, Joseph L.
  • Menkhaus, Dale J.
  • Phillips, Owen R.
  • Schmitz, John D.
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    Laboratory experiments are used to generate data that facilitate investigation of pricing behavior in forward and spot markets. Results suggest a tendency for prices in a spot market to converge to levels higher than those in a forward market. The difference in these market environments is the supply schedule. Buyers in a spot market are aware that supply is inelastic and become relatively aggressive bidders. Forward markets have a relatively elastic supply schedule and buyers fare better. This may motivate firms to promote forward markets and/or vertically integrate in the procurement of inputs.

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    File URL: http://purl.umn.edu/15065
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    Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

    Volume (Year): 29 (1997)
    Issue (Month): 02 (December)
    Pages:

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    Handle: RePEc:ags:joaaec:15065
    Contact details of provider: Web page: http://www.saea.org/jaae/jaae.htm

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    1. Alan Barkema & Mark Drabenstott & Kelly Welch, 1991. "The quiet revolution in the U.S. food market," Economic Review, Federal Reserve Bank of Kansas City, issue May, pages 25-41.
    2. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111.
    3. Hennessy, David A., 1996. "Information Asymmetry As a Reason for Food Industry Vertical Integration," Staff General Research Papers 5032, Iowa State University, Department of Economics.
    4. Mestelman, Stuart & Welland, Douglas, 1987. "Advance production in oral double auction markets," Economics Letters, Elsevier, vol. 23(1), pages 43-48.
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