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A Comparison of Posted-Offer and Double-Auction Pricing Institutions

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  • Jon Ketcham
  • Vernon L. Smith
  • Arlington W. Williams

Abstract

This paper presents an experimental study of a computerized "posted-offer" pricing mechanism that captures many of the basic institutional features of retail exchange in the U.S. Posted-offer market performance is evaluated relative to "double-auction" market performance using two supply and demand designs. Subject experience with the trading mechanism is explicitly considered as an experimental treatment variable. The market data suggest that prices tend to be higher and efficiency lower under posted-offer pricing relative to double auction. However, the institutional effect appears to interact with other design conditions. When feasible, the predictive power of competitive, Nash, and limit-price theoretic equilibria are empirically evaluated.

Suggested Citation

  • Jon Ketcham & Vernon L. Smith & Arlington W. Williams, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Oxford University Press, vol. 51(4), pages 595-614.
  • Handle: RePEc:oup:restud:v:51:y:1984:i:4:p:595-614.
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    File URL: http://hdl.handle.net/10.2307/2297781
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    Citations

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    Cited by:

    1. Douglas D. Davis & Oleg Korenok, 2009. "Posted Offer Markets In Near-Continuous Time: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 449-466, July.
    2. 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.
    3. John Dickhaut & Shengle Lin & David Porter & Vernon L. Smith, 2010. "Durability, Re-trading and Market Performance," Working Papers 10-01, Chapman University, Economic Science Institute.
    4. Morone, Andrea & Nemore, Francesco & Nuzzo, Simone, 2016. "Experimental Evidence on Tax Salience and Tax Incidence," EconStor Preprints 146916, ZBW - German National Library of Economics.
    5. Nuzzo, Simone & Morone, Andrea, 2017. "Asset markets in the lab: A literature review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 13(C), pages 42-50.
    6. Smith, Vernon L., 2010. "Theory and experiment: What are the questions?," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 3-15, January.
    7. Jamison, Julian & Karlan, Dean S., 2009. "When curiosity kills the profits: An experimental examination," Games and Economic Behavior, Elsevier, vol. 66(2), pages 830-840, July.
    8. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January.
    9. Daniel Levy & Shantanu Dutta & Mark Bergen & Robert Venable, 1998. "Price adjustment at multiproduct retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 81-120.
    10. Morone, Andrea & Nuzzo, Simone, 2015. "Market Efficiency, Trading Institutions and Information Mirages: evidence from an experimental asset market," MPRA Paper 67448, University Library of Munich, Germany.
    11. Jim Engle-Warnick & Bradley Ruffle, 2002. "Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets," Economics Papers 2002-W14, Economics Group, Nuffield College, University of Oxford.
    12. Kujal, Praveen & Smith, Vernon L., 2008. "Fairness and Short Run Price Adjustment in Posted Offer Markets," Handbook of Experimental Economics Results, Elsevier.
    13. Kujal, Praveen, 2008. "Quantitative Restrictions in Experimental Posted-offer Markets," Handbook of Experimental Economics Results, Elsevier.
    14. Søberg, Martin, 2003. "Voting rules and endogenous trading institutions: An experimental study," Memorandum 17/2002, Oslo University, Department of Economics.
    15. Cason, Timothy N. & Friedman, Daniel, 1996. "Price formation in double auction markets," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1307-1337, August.
    16. Davis, Douglas D. & Wilson, Bart J., 2008. "Strategic buyers, horizontal mergers and synergies: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 643-661, May.
    17. Jean Paul Rabanal & Olga A. Rabanal, 2015. "A Simulation on the Evolution of Markets: Call Market, Decentralized and Posted Offer," Working Papers 2015-34, Peruvian Economic Association.
    18. Nielsen, Kurt, 2005. "Auctioning Payment Entitlements," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24566, European Association of Agricultural Economists.
    19. Bart Wilson, 1998. "What Collusion? Unilateral Market Power as a Catalyst for Countercyclical Markups," Experimental Economics, Springer;Economic Science Association, vol. 1(2), pages 133-145, September.
    20. Morten Søberg, 2002. "Voting rules and endogenous trading institutions: An experimental study," Discussion Papers 328, Statistics Norway, Research Department.
    21. Marsh, Dan & Tucker, Steve & Doole, Graeme, 2014. "An experimental approach to assessment of trading and allocation mechanisms for nutrient trading," 2014 Conference (58th), February 4-7, 2014, Port Maquarie, Australia 167195, Australian Agricultural and Resource Economics Society.
    22. Heymann, D. & Kawamura, E. & Perazzo, R. & Zimmermann, M.G., 2014. "Behavioral heuristics and market patterns in a Bertrand–Edgeworth game," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 124-139.
    23. Anil Caliskan & David Porter & Stephen Rassenti & Vernon L. Smith & Bart J. Wilson, 2007. "Exclusionary Bundling and the Effects of a Competitive Fringe," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 109-132, March.
    24. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June.
    25. Helland, Leif & Moen, Espen R. & Preugschat, Edgar, 2017. "Information and coordination frictions in experimental posted offer markets," Journal of Economic Theory, Elsevier, vol. 167(C), pages 53-74.

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