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Laboratory Behavior in Spot and Forward Auction Markets

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  • Owen Phillips
  • Dale Menkhaus
  • Joseph Krogmeier

Abstract

Auctions that require advance production increase seller costs because inventories must be held. This cost does not exist in production-to-demand markets for which production follows trading, and sales exactly match quantities produced. Data from laboratory computerized double auction markets show that advance-production prices are significantly higher and quantities traded are significantly lower than they are in production-to-demand auctions. Price convergence patterns show advance-production sellers moving toward 9% higher prices and 22% greater earnings. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Owen Phillips & Dale Menkhaus & Joseph Krogmeier, 2001. "Laboratory Behavior in Spot and Forward Auction Markets," Experimental Economics, Springer;Economic Science Association, vol. 4(3), pages 243-256, December.
    • Handle: RePEc:kap:expeco:v:4:y:2001:i:3:p:243-256
    DOI: 10.1023/A:1013269304544
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    References listed on IDEAS

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    1. Mestelman, Stuart & Welland, Douglas, 1987. "Advance production in oral double auction markets," Economics Letters, Elsevier, vol. 23(1), pages 43-48.
    2. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70(2), pages 111-111.
    3. Phillips, Owen R. & Menkhaus, Dale J., 2001. "Random shocks in experimental spot and forward auction markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(4), pages 545-560.
    4. Mestelman, Stuart & Welland, Deborah & Welland, Douglas, 1987. "Advance production in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 8(2), pages 249-264, June.
    5. Charles N. Noussair & Charles R. Plott & Raymond G. Riezman, 2013. "An Experimental Investigation of the Patterns of International Trade," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 17, pages 299-328, World Scientific Publishing Co. Pte. Ltd..
    6. Ashenfelter, Orley, et al, 1992. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Econometrica, Econometric Society, vol. 60(6), pages 1407-1433, November.
    7. Davis, Douglas D., 1999. "Advance production and Cournot outcomes: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 59-79, September.
    8. Mestelman, Stuart & Welland, Douglas, 1991. "The effects of rent asymmetries in markets characterized by advance production : A comparison of trading institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 15(3), pages 387-405, May.
    9. Stuart Mestelman & Douglas Welland, 1988. "Advance Production in Experimental Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 641-654.
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    Cited by:

    1. Isa Hafalir & Hadi Yektaş, 2011. "Selling goods of unknown quality: forward versus spot auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 245-256, September.
    2. Phillips, Owen R. & Nagler, Amy M. & Menkhaus, Dale J. & Huang, Shanshan & Bastian, Christopher T., 2014. "Trading partner choice and bargaining culture in negotiations," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 178-190.
    3. Yakunina, Alla V. & Menkhaus, Dale J. & Phillips, Owen R. & Esipov, Victor E., 2003. "Non-performance risk and transaction costs in laboratory forward and spot markets," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 257-274, June.
    4. Bastian Henze & Charles Noussair & Bert Willems, 2012. "Regulation of network infrastructure investments: an experimental evaluation," Journal of Regulatory Economics, Springer, vol. 42(1), pages 1-38, August.
    5. Phillips, Owen R. & Menkhaus, Dale J., 2010. "The culture of private negotiation: Endogenous price anchors in simple bilateral bargaining experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 705-715, December.
    6. Nagler, Amy M. & Menkhaus, Dale J. & Bastian, Christopher T. & Ehmke, Mariah D. & Coatney, Kalyn T., 2013. "Subsidy Incidence in Factor Markets: An Experimental Approach," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(1), pages 17-33, February.
    7. Kristiana Hansen & Jonathan Kaplan & Stephan Kroll, 2014. "Valuing Options in Water Markets: A Laboratory Investigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 59-80, January.
    8. Owen R. Phillips & Amy M. Nagler & Dale J. Menkhaus & Christopher T. Bastian, 2010. "Experimental Work On Subsidies, Moral Hazard, And Market Power In Agricultural Markets," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 488-501, October.
    9. Phillips, Owen R. & Menkhaus, Dale J., 2006. "The Culture of Private Negotiation: Price Drift in Bilateral Bargaining," 2006 Annual meeting, July 23-26, Long Beach, CA 21168, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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