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A Limit of Bilateral Contracting Institutions

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  • Mark V. Van Boening
  • Nathaniel T. Wilcox

Abstract

Nonconvexities undermine the efficiency of the usually robust "double auction" or DA market institution. We experimentally examine two modified DAs that allow for particularly rich bilateral contracting such as arbitrarily nonlinear pricing. The first allows for arbitrarily nonlinear pricing but should not necessarily promote it; the second should promote efficient nonlinear pricing. Experiments support predictions on the emergence of nonlinear pricing, but not those concerning efficiency. Coordination problems are the culprit. We conclude that institutions capable of dealing with some nonconvexities must frequently provide multilateral contracting possibilities not permitted by DA rules and other market-like bilateral contracting institutions. (JEL C92, D49, L19) Copyright 2005, Oxford University Press.

Suggested Citation

  • Mark V. Van Boening & Nathaniel T. Wilcox, 2005. "A Limit of Bilateral Contracting Institutions," Economic Inquiry, Western Economic Association International, vol. 43(4), pages 840-854, October.
    • Handle: RePEc:oup:ecinqu:v:43:y:2005:i:4:p:840-854
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    File URL: http://hdl.handle.net/10.1093/ei/cbi062
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    Citations

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    Cited by:

    1. Vivian Lei & Charles N. Noussair, 2007. "Equilibrium Selection in an Experimental Macroeconomy," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 448-482, October.
    2. Elmaghraby, Wedad J. & Larson, Nathan, 2012. "Explaining deviations from equilibrium in auctions with avoidable fixed costs," Games and Economic Behavior, Elsevier, vol. 76(1), pages 131-159.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other

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