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

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Abstract

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.

Suggested Citation

  • Morten Søberg, 2002. "A laboratory stress-test of bid, double and offer auctions," Discussion Papers 327, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:327
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp-327-aug02.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    4. Charles R. Plott & Vernon L. Smith, 1978. "An Experimental Examination of Two Exchange Institutions," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 133-153.
    5. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    6. 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.
    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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    More about this item

    Keywords

    Sequential auctions; experimental economics.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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