Document Type
Article
Publication Date
1-31-2018
Abstract
We report boundary experiments testing the robustness of price convergence in double auction markets for non-durable goods in which there is extreme earnings inequality at the competitive equilibrium (CE). Following up on a conjecture by Smith (1976a), we test whether the well-known equilibrating power of the double auction institution is robust to the presence of complete information about traders’ values and costs and the presence of symmetric market power. We find that complete information is insufficient to impede convergence to CE prices; however, introducing market power consistently causes prices to deviate from the CE, whether or not subjects possess complete information. Our design highlights the value of boundary experiments in understanding how market institutions shape behavior, and our findings help delineate the limits of the double auction institution to generate competitive outcomes.
Recommended Citation
Kimbrough, E. O., & Smyth, A. (2018). Testing the boundaries of the double auction: The effects of complete information and market power. Journal of Economic Behavior & Organization, 150, 372-396. doi: 10.1016/j.jebo.2018.01.017
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Behavior & Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Behavior & Organization, volume 150, in 2018. DOI: 10.1016/j.jebo.2018.01.017
The Creative Commons license below applies only to this version of the article.