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Concurrent trading in two experimental markets with demand interdependence

  • Arlington W. Williams

    ()

    (Department of Economics, Wylie Hall 105, Indiana University, Bloomington, IN 47405, USA)

  • John O. Ledyard

    ()

    (Division of Humanities and Social Sciences, 228 - 77, California Institute of Technology,Pasadena, CA 91125, USA)

  • Steven Gjerstad

    ()

    (T.J. Watson Research Center, IBM Corporation, Route 134, Kitchawan Road,Yorktown Heights, NY 10598, USA)

  • Vernon L. Smith

    ()

    (Economics Science Laboratory, McClelland Hall 116, University of Arizona,Tuscon, AZ 85721, USA)

We report results from fifteen computerized double auctions with concurrent trading of two commodities. In contrast to prior experimental markets, buyers' demands are induced via CES earnings functions defined over the two traded goods, with a fiat money expenditure constraint. Sellers receive independent marginal cost arrays for each commodity. Parameters for buyers' earnings functions and sellers' costs are set to yield a stable, competitive equilibrium. In spite of the complexity introduced by the demand interdependence, the competitive model is a good predictor of market outcomes, although prices tend to be above (below) the competitive prediction in the low-price (high-price) market.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 16 (2000)
Issue (Month): 3 ()
Pages: 511-528

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Handle: RePEc:spr:joecth:v:16:y:2000:i:3:p:511-528
Note: Received: April 30, 1999; revised version: June 7, 1999
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