Summary
Standard laboratory posted-offer markets respond slowly and incompletely to demand shocks. In these one-sided markets, where sellers control the setting of prices, very little information is transmitted via the process of exchange. For this reason, traders have trouble distinguishing randomness in their own experience from changes in market fundamentals. This paper reports the results of twelve laboratory markets conducted to assess whether some common variants to standard posted-offer rules can correct the adjustment deficiences. Although discounting, multiple postings and excess demand information all improve performance, we find that response remains poor, and efficiencies low.
Similar content being viewed by others
References
Clauser, L., Plott, C.R.: On the anatomy of the ‘nonfacilitating’ features of the double auction institution in conspiratorial market. In: Friedman, D., Genakopolos, S., Lave, D. Rust, J. (eds.) Double auction markets: institutions, theories, and laboratory evidence. Reading: Addison-Wesley (In press)
Conover, W.J.: Practical nonparametric statistics. New York: John Wiley and Sons 1980
Daniels, B.P., Plott, C.R.: Inflation and expectations in experimental markets. In: Tietz, R., Albers, W., Selten, R. (eds.) Bounded rational behavior in experimental games and markets. Berlin: Springer-Verlag 1988
Davis, D.D., Harrison, G.W., Williams, A.W.: The effects of nonstationarities on the convergence to competitive equilibria. J. Econ. Behav. Organ.20, 1–22 (1993)
Davis, D.D., Holt, C.A.: Experimental economics. Princeton: Princeton University Press 1993
Davis, D.D., Holt, C.A.: Conspiracies and secret discounts in laboratory markets. University of Virginia, 1995
Davis, D.D., Williams, A.W.: The Hayek hypothesis in experimental auctions: institutional effects and market power. Econ. Inq.29, 261–274 (1991)
Greenwald, B., Stiglitz, J.: New and old Keynesians. J. Econ. Pers.7, 23–44 (1993)
Hong, J.T., Plott, C.R.: Rate filing policies for inland water transportation: an experimental approach. Bell J. Econ.13, 1–19 (1982)
Isaac, R.M., Ramey, V., Williams, A.W.: The effects of market organization on conspiracies in restraint of trad. J. Econ. Behav. Organ.5, 191–222 (1984)
Ketcham, J., Smith, V.L., Williams, A.W.: A comparison of posted-offer and double-auction pricing institutions. Rev. Econ. Stud.51, 595–614 (1984)
Lian, P., Plott, C.R.: General equilibrium, macroeconomics and money in a laboratory experimental environment. D.P. 842 California Institute of Technology 1993
Mestelman, S., Welland, J.D.: Price flexibility and market performance in experimental markets. Econ. Theory4, 105–129 (1994)
Plott, C.R.: The posted-offer trading institution, Science,232, 732–738 (1986)
Plott, C.R., Wilde, L.: Professional diagnosis vs. self-diagnosis: an experimental examination of some special features of markets with uncertainty. In: Smith V. (ed.) Research in experimental economics, Vol.2, pp. 63–112. Greenwich: JAI Press 1992
Rustichini, A., Villamil, A.P.: Equilibrium price stickiness. University of Illinois, 1992
Smith, V.L.: An empirical study of decentralized institutions of monopoly restraint. In: Quirk, J., Horwich, G. (eds.) Essays in contemporary fields of economics in honor of E.T. Weiler, 1914–1979, pp. 83–106. West Lafayette: Purdue University Press 1979
Author information
Authors and Affiliations
Additional information
Support for this research was provided by the National Science Foundation (SBR 9319842 and SBR 9320044), and the University of Virginia Bankard Fund. Data are archived at FTP address: fido.econlab.arizona.edu. We wish to thank Charles Plott and Shyam Sunder for useful comments on an earlier draft of this paper. The usual disclaimer applies.