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Auction Experiments and Simulations of Milk Quota Exchanges


  • Brümmer, Bernhard
  • Loy, Jens-Peter
  • Requate, Till


Since 2000 Germany has a fairly unique market mechanism to trade milk quotas between dairy farms. The two major features are: (1) a quasi auctioning system that produces excess demands which are covered by state reserves free of charge and (2) a price band is used to exclude high price bids. For both features an experimental design is developed to study their impact in comparison to a regular seller’s sealed bid double auction. Results show that both treatments lead to significant misallocations. These are due the direct impact of regulations and due to an imperfect adjustment of bidding functions towards them. The major goal of the market design to reduce quota prices is reached, however, at significant trade losses.

Suggested Citation

  • Brümmer, Bernhard & Loy, Jens-Peter & Requate, Till, 2010. "Auction Experiments and Simulations of Milk Quota Exchanges," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61304, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea10:61304

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    References listed on IDEAS

    1. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
    2. Peter Bogetoft & Kurt Nielsen & Henrik Ballebye Olesen, 2003. "The single-bid restriction on milk quota exchanges," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(2), pages 193-215, June.
    3. McAfee, R. Preston, 1992. "A dominant strategy double auction," Journal of Economic Theory, Elsevier, vol. 56(2), pages 434-450, April.
    4. Nautz, D. & Wolfstetter, E., 1997. "Bid shading and risk aversion in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 56(2), pages 195-200, October.
    5. Maurice Doyon & Virginie Simard & Kent D. Messer & Lota D. Tamini & Harry M. Kaiser, 2008. "An Experimental Analysis of Modifications to the Centralized Milk Quota Exchange System in Quebec," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(3), pages 295-312, September.
    6. Mark A. Satterthwaite & Steven R. Williams, 1989. "The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 477-498.
    7. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
    8. Martin Shubik, 1977. "A Theory of Money and Financial Institutions. Part 22. A Price-Quantity Buy-Sell Market with and without Contingent Bids," Cowles Foundation Discussion Papers 455, Cowles Foundation for Research in Economics, Yale University.
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    More about this item


    Double Auction; Experiment; Milk Quota; Germany; Institutional and Behavioral Economics; Research Methods/ Statistical Methods; L11; D44; Q13;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness


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