A laboratory stress-test of bid, double and offer auctions

Abstract

Abstract:\nThis paper reports on the empirical properties of the bid auction (buyers propose prices), offer\nauction (sellers suggest prices) and double auction (both buyers and seller initiate price quotes).\nThese trading institutions are stress-tested using a nonstationary monopolistic market environment in\nwhich the buyers' demand schedule and the single seller's supply curve shift unpredictably between\ntrading periods. The principal result is threefold. First, double-auction prices tend to be greater than\noffer-auction prices which again tend to be greater than bid-auction prices. Second, the listed ranking\nreflects tendencies only. The laboratory data do not support statistically significant behavioral\ndifferences between the three auctions. Third, trading is highly efficient regardless of auction type.