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A laboratory stress-test of bid, double and offer auctions

  • Søberg, Morten

    ()

    (Statistics Norway)

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    This paper reports on the empirical properties of the bid auction (buyers propose prices), offer auction (sellers suggest prices) and double auction (both buyers and seller initiate price quotes). These trading institutions are stress-tested using a nonstationary monopolistic market environment in which the buyers' demand schedule and the single seller's supply curve shift unpredictably between trading periods. The principal result is threefold. First, double auction prices tend to be greater than offer auction prices which again tend to be greater than bid auction prices. Second, the listed ranking reflects tendencies only. The laboratory data do not support statistically significant behavioral differences between the three auctions. Third, trading is highly efficient regardless of auction type.

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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2002/Memo-05-2002.pdf
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    Paper provided by Oslo University, Department of Economics in its series Memorandum with number 05/2002.

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    Length: 36 pages
    Date of creation: 16 Jun 2003
    Date of revision:
    Handle: RePEc:hhs:osloec:2002_005
    Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
    Phone: 22 85 51 27
    Fax: 22 85 50 35
    Web page: http://www.oekonomi.uio.no/indexe.html
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    1. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
    2. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
    3. Ledyard, John O. & Szakaly-Moore, Kristin, 1994. "Designing organizations for trading pollution rights," Journal of Economic Behavior & Organization, Elsevier, vol. 25(2), pages 167-196, October.
    4. Davis, Douglas D. & Harrison, Glenn W. & Williams, Arlington W., 1993. "Convergence to nonstationary competitive equilibria : An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 22(3), pages 305-326, December.
    5. Jamison, Julian C. & Plott, Charles R., 1997. "Costly offers and the equilibration properties of the multiple unit double auction under conditions of unpredictable shifts of demand and supply," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 591-612, April.
    6. Plott, Charles R. & Smith, Vernon L., . "An Experimental Examination of Two Exchange Institutions," Working Papers 83, California Institute of Technology, Division of the Humanities and Social Sciences.
    7. Joyce, Patrick, 1983. "Information and behavior in experimental markets," Journal of Economic Behavior & Organization, Elsevier, vol. 4(4), pages 411-424, December.
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