Random shocks in experimental spot and forward auction markets |
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| Institution: | 1. Department of Economics & Finance, University of Wyoming, Laramie, WY 82071-3985, USA;2. Department of Agricultural & Applied Economics, University of Wyoming, Laramie, WY 82071-3354, USA;1. Potsdam Institute for Climate Impact Research (PIK), Telegraphenberg A 56, 14473 Potsdam, Germany;2. University of Oxford, Institute of New Economic Thinking, Walton Well Road, Oxford OX2 6ED, United Kingdom;3. Economic and Social Research Institute, Whitaker Square, Sir John Rogerson’s Quay, Dublin, Ireland;4. Department of Economics, Trinity College, Dublin, Ireland;5. MACSI, Department of Mathematics and Statistics, University of Limerick, Limerick, Ireland;6. Energy Institute, School of Electrical and Electronic Engineering, University College Dublin, Ireland;1. Metallurgical Engineering Department, University of Utah, Salt Lake City, UT 84112, USA;2. Chemical Engineering Department, University of Utah, Salt Lake City, UT 84112, USA |
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| Abstract: | Traders face random demand and supply schedules in two experimental auction environments. One is the standard double auction and the other requires sellers to produce and hold inventory before trading. Inventories cannot be held between trading cycles. The endogenous and random cost of inventory disciplines sellers to restrict sales and keep prices relatively high. Anxious buyers may bid up price because total sales cannot exceed inventories. Shocks to the system do not change this behavior except when seller production costs are random. In this treatment, prices converge to the predicted competitive equilibrium. The inventory requirement in all cases increases the earnings of sellers relative to buyers. |
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