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 cost is imposed in the form of a tax on bids and asks (but not contracts) that are tendered in the market. The markets were nonstationary in the sense that market demand and market supply shifted unpredictably in each period. The results are as follows: (1) A market equilibration process is observed across the periods of nonstationary markets. (2) The price discovery process in the costly offer condition was 'incomplete' relative to the free offer case. (3) Price equilibration with the offer cost was slower and efficiencies were reduced.
© 1997 Elsevier Science B.V. Received 20 July 1995; received in revised form 17 July 1996. 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.