A laboratory stress-test of bid, double and offer auctions
Working paper
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Date
2002Metadata
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- Discussion Papers [1002]
Abstract
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.