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Posted - Offer Markets In Near Continuous Time: an Experimental Investigation

Author

Listed:
  • Douglas D. Davis

    (Department of Economics, VCU School of Business)

  • Oleg Korenok

    (Department of Economics, Virginia Commonwealth University)

Abstract
This paper reports an experiment conducted to evaluate a ‘near continuous’ variant of the posted-offer trading institution, where the number of periods in a market session is increased by reducing sharply each period’s maximum length. Experimental results suggest that although decisions in time-truncated periods are not equivalent to periods of longer duration, extensive repetition improves considerably the drawing power of equilibrium predictions in some challenging environments. Nevertheless, significant deviations remain in the near continuous framework. We also observe that the extra data collected in the near continuous framework allows new insights into price convergence and price signaling.

Suggested Citation

  • Douglas D. Davis & Oleg Korenok, 2005. "Posted - Offer Markets In Near Continuous Time: an Experimental Investigation," Working Papers 0504, VCU School of Business, Department of Economics, revised 2007.
    • Handle: RePEc:vcu:wpaper:0504
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    File URL: http://www.people.vcu.edu/%7Edddavis/papers/MS8733_FINAL.pdf
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    References listed on IDEAS

    as
    1. Dan Alger, 1987. "Laboratory Tests of Equilibrium Predictions with Disequilibrium Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 105-145.
    2. Douglas D. Davis & Charles A. Holt, 1996. "Price rigidities and institutional variations in markets with posted prices (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 63-80.
    3. Davis, Douglas D & Williams, Arlington W, 1991. "The Hayek Hypothesis in Experimental Auctions: Institutional Effects and Market Power," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 261-274, April.
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    8. Ryan Murphy & Amnon Rapoport & James Parco, 2006. "The breakdown of cooperation in iterative real-time trust dilemmas," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 147-166, June.
    9. Davis, Douglas D. & Williams, Arlington W., 1997. "The effects of nonstationarities on performance in call markets," Journal of Economic Behavior & Organization, Elsevier, vol. 32(1), pages 39-54, January.
    10. Smith, Vernon L, 1982. "Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis"," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 165-179, April.
    11. Davis, Douglas D. & Harrison, Glenn W. & Williams, Arlington W., 1993. "Convergence to nonstationary competitive equilibria : An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 22(3), pages 305-326, December.
    12. Smith, Vernon L, 1985. "Experimental Economics: Reply," American Economic Review, American Economic Association, vol. 75(1), pages 264-272, March.
    13. Edward L. Millner & Michael D. Pratt & Robert J. Reilly, 1990. "Contestability in Real-Time Experimental Flow Markets," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 584-599, Winter.
    14. Cary A. Deck & Bart J. Wilson, 2003. "Automated Pricing Rules in Electronic Posted Offer Markets," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 208-223, April.
    15. Deck, Cary A. & Wilson, Bart J., 2008. "Experimental gasoline markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 134-149, July.
    16. Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
    17. Brown-Kruse, Jamie, 1993. "Nash Equilibrium and Buyer Rationing Rules: Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 631-646, October.
    18. Davis, Douglas D. & Williams, Arlington W., 1990. "Market power and the institutional asymmetry of the posted offer trading institution," Economics Letters, Elsevier, vol. 34(3), pages 211-214, November.
    19. Jon Ketcham & Vernon L. Smith & Arlington W. Williams, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(4), pages 595-614.
    20. Binmore, Ken, 1999. "Why Experiment in Economics?," Economic Journal, Royal Economic Society, vol. 109(453), pages 16-24, February.
    21. Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 529-544.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Deck, Cary A. & Wilson, Bart J., 2008. "Experimental gasoline markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 134-149, July.
    2. Douglas Davis & Oleg Korenok & Robert Reilly, 2010. "Cooperation without coordination: signaling, types and tacit collusion in laboratory oligopolies," Experimental Economics, Springer;Economic Science Association, vol. 13(1), pages 45-65, March.
    3. Cary Deck & Bart J. Wilson, 2020. "Auctions in near-continuous time," Experimental Economics, Springer;Economic Science Association, vol. 23(1), pages 110-126, March.
    4. Olga A. Rud & Jean Paul Rabanal, 2018. "Evolution of markets: a simulation with centralized, decentralized and posted offer formats," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 667-689, August.
    5. Deck, Cary & Gu, Jingping, 2012. "Price increasing competition? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 730-740.
    6. Anil Caliskan & David Porter & Stephen Rassenti & Vernon L. Smith & Bart J. Wilson, 2007. "Exclusionary Bundling and the Effects of a Competitive Fringe," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 109-132, March.
    7. Douglas Davis & Oleg Korenok & Robert Reilly, 2009. "Re-matching, information and sequencing effects in posted offer markets," Experimental Economics, Springer;Economic Science Association, vol. 12(1), pages 65-86, March.
    8. Davis, Douglas, 2009. "Pure numbers effects, market power, and tacit collusion in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 475-488, October.
    9. Voslinsky, Alisa & Azar, Ofer H., 2021. "Incentives in experimental economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 93(C).
    10. Sara Ellison & Christopher M. Snyder, 2014. "An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information," CESifo Working Paper Series 4655, CESifo.
    11. Jean Paul Rabanal & Olga A. Rabanal, 2015. "A Simulation on the Evolution of Markets: Call Market, Decentralized and Posted Offer," Working Papers 34, Peruvian Economic Association.
    12. Davis, Douglas & Korenok, Oleg, 2011. "Nominal shocks in monopolistically competitive markets: An experiment," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 578-589.

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    More about this item

    Keywords

    experiment; monopoly; pricing; price signaling;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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