14 - The Effect of Rent Asymmetries in Experimental Auction Markets

Summary

We report the results of twelve ‘double-auction’ market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium. The proposition (convergence bias) that prices tend to approach the competitive equilibrium from above (below) when consumer surplus is greater (less) than producer surplus cannot be rejected. We do, however, reject the proposition (convergence symmetry) that these convergence biases are of equal absolute magnitude. Excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices.

Introduction

This paper uses experimental methods to examine two questions. Does asymmetry in the relative theoretical surplus of buyers and sellers in single market double auction (DA) exchange affect the convergence path of prices toward the competitive equilibrium (CE)? In particular, do prices tend to converge from above (below) the CE price when buyer surplus is greater (less) than seller surplus? This question is important in establishing the replicable ‘stylized facts’ that characterize market dynamics.

The second question we examine is whether agent trading behavior, as revealed in the convergence of DA markets, is symmetric with reSpect to the roles of buying and selling. Specifically, suppose we examine the convergence of DA markets in an asymmetrical supply and demand design in which, at the CE, two-thirds of the total surplus is obtained by buyers, and one-third is obtained by sellers.