Price Flexibility and Market Performance in Experimental Markets
Stuart Mestelman
Douglas Welland
McMaster University
Hamilton, Ontario,
Canada
L8S 4M6
April 1993
Abstract
Posted offer and double auction pricing institutions are examples of fixed and flexible pricing
institutions, respectively. In laboratory settings, double auction markets dominate posted offer
institutions in terms of the amount of potential surplus which traders are able to extract. These
results are invariant with respect to the experience of traders or the perishability of the good
traded. Performance differences across institutions may be due to information differences. The
introduction of a second price-posting in the posted offer institution results in a pricing
institution which is colser to the double auction's flexible pricing environment. Laboratory
results suggest that under otherwise comparable conditions, this innovation is sufficient to
remove the performance differences which have been demonstrated to exist between the posted
offer and double auction institutions.
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