Off-Floor Trading, Disintegration, and the Bid-Ask Spread in Experimental Markets
This article uses experimental methods to establish that greater uncertainty in the environment increases the naturally emerging bid-ask spread in double-auction trading. The opportunity to trade off floor is then introduced. Off-floor trading is greater in the environment with a wider bid-ask spread, increases with block trading, and increases still more with increasing subject experience. Finally, the authors find that the preponderance of off-floor trades are inside the bid-ask spread, supporting the hypothesis that a motive for such trades is to split privately the gain represented by the bid-ask spread without revealing publicly a willingness to make price concessions. Coauthors are Shawn LaMaster, Vernon L. Smith, and Mark Van Boening. Copyright 1991 by University of Chicago Press.