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Equilibrium Discovery and Preopening Mechanisms in an Experimental Market

  • Biais, Bruno
  • Bisière, Christophe
  • Pouget, Sébastien

We experimentally analyze equilibrium discovery in i) a pure call auction, ii) a call auction preceded by a nonbinding preopening period, and iii) a call auction preceded by a binding preopening period. We examine whether a preopening period can facilitate coordination on the Pareto dominant equilibrium. During the nonbinding preopening period, traders tend to place manipulative orders. After observing such orders, participants learn to distrust cheap talk and coordinate less on Pareto dominant outcomes. In contrast, we find that, when preopening orders are binding, they improve the ability to coordinate on high gains from trade.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 543.

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Date of creation: Jan 2009
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Publication status: Published in Management Science, vol.�60, n°3, mars 2014.
Handle: RePEc:ide:wpaper:7534
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