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Title:An experiment on the core PDF Logo
Authors:Yan, Huibin
Friedman, Daniel
Issue Date:2008
Series/Report no.:Working Papers, UC Santa Cruz Economics Department 640
Abstract:Each of n >= 1 identical buyers (and m >= 1 identical sellers) wants to buy (sell) a single unit of an indivisible good. The core predicts a unique and extreme outcome: the entire surplus is split evenly among the buyers when m > n and among the sellers when m < n; the long side gets nothing. We test this core conjecture in the lab with n + m = 3 or 5 randomly rematched traders and minimal imbalances (m = n +- 1) in three market institutions. In the standard continuous double auction, the surplus indeed goes overwhelmingly towards the short side. The DA-Chat institution allows traders to have cheap talk prior to the double auction, while the DA-Barg institution allows the long siders to negotiate enforceable profit sharing agreements while trading. Despite frequent attempts to collude and occasional large deviations from the core prediction, we find that successful collusion is infrequent in both new institutions. A disproportionate fraction of the successful collusions are accompanied by appeals to fairness.
Subjects:core
market
experiment
fairness
JEL:C71
C78
C92
D43
Document Type:Working Paper
Appears in Collections:Working Papers, Economics Department, UC Santa Cruz

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