Do Traders Learn to Select Efficient Market Institutions?

Carlos Alós-Ferrer, Johannes Buckenmaier and Georg Kirchsteiger

No 364, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: When alternative market institutions are available, traders have to decide both where and how much to trade. We conducted an experiment where traders could decide to trade either in an (efficient) double-auction institution or in a posted- offers one, which should favor sellers. When sellers face decreasing returns to scale (increasing production costs), fast coordination on the double-auction occurs, with the posted-offers institution becoming inactive. In contrast, under constant returns to scale, both institutions remain active and coordination is slower. The reason is that, in a finite-horizon setting, sellers trade off larger efficiency in a market with dwindling profits for biased-up profits in a market with vanishing customers. Hence, our results indicate that efficiency alone might not be sufficient to guarantee coor- dination on a single market institution if the distribution of the gains from trade is asymmetric. Trading behavior approaches equilibrium predictions (market clearing) within each institution, but switching behavior across institutions is explained by simple rules of thumb, with buyers chasing low prices and sellers considering both prices and trader ratios.

Keywords: Market selection; market clearing; posted offer market; constant returns to scale; experiment (search for similar items in EconPapers)
JEL-codes: D4 D83 L1 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Do traders learn to select efficient market institutions? (2022)
Working Paper: Do Traders Learn to Select Efficient Market Institutions ? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:364

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