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Published online by Cambridge University Press: 06 July 2010
This paper presents an experimental study of a computerized “posted-offer” pricing mechanism that captures many of the basic institutional features of retail exchange in the U.S. Posted-offer market performance is evaluated relative to “double-auction” market performance using two supply and demand designs. Subject experience with the trading mechanism is explicitly considered as an experimental treatment variable. The market data suggest that prices tend to be higher and efficiency lower under posted-offer pricing relative to double auction. However, the institutional effect appears to interact with other design conditions. When feasible, the predictive power of competitive, Nash, and limit-price theoretic equilibria are empirically evaluated.
INTRODUCTION
The institution of posted-offer pricing is defined (Smith, 19766; Plott and Smith, 1978) as a market mechanism in which each seller “posts” a selling price at the beginning of each trading period. Once prices have been displayed to all buyers and sellers, buyers then proceed in random order to purchase the quantity each desires. Viewed as an extensive form (minorant) game, sellers move first by sending price messages, buyers respond with quantity messages disclosing how much each will buy from some seller. Each seller involved in a trade moves last by indicating when no further units will be delivered (a “stock out” occurs).
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