Costly Offers and the Equilibration Properties of the Multiple Unit Double Auction Under Conditions of Unpredictable Shifts of Demand and Supply
The paper reports on the behavior of markets in which a transactions cost is imposed in the form of a tax on bids and asks that are tendered in the market. That is, in the markets studied communication with the other side of the market was costly. The markets were nonstationary in the sense that market demand and market supply shifted unpredictably each period and the markets were organized by the computerized Multiple Unit Double Auction. The results are as follow. (1) A market equilibration process is observed across the periods of nonstationary markets. (2) The imposition of the cost on offers did not negate the tendency toward market equilibration but the price discovery process was "incomplete" relative to the free offer case. (3) Price equilibration with the offer cost was slower and efficiencies were reduced.
A special acknowledgment is due to the National Science Foundation and to the Caltech Laboratory for Experimental Economics and Political Science for funding support that made these experiments possible. This paper evolved from a project originating in the Caltech seminar on experimental economics. The comments of the students in the seminar have been especially helpful. We wish to thank graduate students John Keeling and Tanya Rosenblat of M.I.T., and undergraduate Theodore L. Turocy III of Caltech, for their help with the statistical computations. Published as Jamison, Julian C. and Plott, Charles R. (1997) Costly offers and the equilibration properties of the multiple unit double auction under conditions of unpredictable shifts of demand and supply. Journal of Economic Behavior & Organization, 32 (4). pp. 591-612.
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