On the Anatomy of the "Nonfacilitating" Features of the Double Auction Institution in Conspiratorial Markets

Abstract

Effective conspiracies are more easily formed in posted-offer and in sealed-bid markets than in double auction markets. A feature of double auctions is isolated as the possible source of the behavioral differences. The double auction presents conspirators with continuous temptations to defect from conspiratorial agreements. It also fosters a second type of competition among sellers for access to buyers caused by the fact that only one quotation can be exposed to the market at any instant in time. An extreme case of the restricted exposure feature is the New York rule that requires that only the (first) best offers are exposed to the market and can be replaced only by better offers. This second type of competition can be interpreted as a coordination problem for volume allocation that could interact with other features of the process to undermine conspiracy. The research demonstrates that this second type of competition cannot account for observed differences. When the second type of competition is removed through the creation of a special type of market organization called The Individualized Seller Market Double Auction, the conspiracies still have little or no effectiveness.