Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/225013 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 364
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
When alternative market institutions are available, traders have to decide both where and how much to trade. We conducted an experiment where traders could decide to trade either in an (efficient) double-auction institution or in a posted-offers one, which should favor sellers. When sellers face decreasing returns to scale (increasing production costs), fast coordination on the double-auction occurs, with the posted-offers institution becoming inactive. In contrast, under constant returns to scale, both institutions remain active and coordination is slower. The reason is that, in a finite-horizon setting, sellers trade off larger efficiency in a market with dwindling profits for biased-up profits in a market with vanishing customers. Hence, our results indicate that efficiency alone might not be sufficient to guarantee coordination on a single market institution if the distribution of the gains from trade is asymmetric. Trading behavior approaches equilibrium predictions (market clearing) within each institution, but switching behavior across institutions is explained by simple rules of thumb, with buyers chasing low prices and sellers considering both prices and trader ratios.
Subjects: 
market selection
market clearing
posted offer market
constant returns to scale
experiment
JEL: 
D4
D83
L1
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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