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An Experimental Economics Approach to Analyzing Price Discovery in Forward and Spot Markets

Published online by Cambridge University Press:  28 April 2015

Joseph L. Krogmeier ,
Dale J. Menkhaus ,
Owen R. Phillips  and
John D. Schmitz
Joseph L. Krogmeier
Affiliation:
Department of Agricultural Economics, University of Wyoming
Dale J. Menkhaus
Affiliation:
Department of Agricultural Economics, University of Wyoming
Owen R. Phillips
Affiliation:
Department of Economics and Finance, University of Wyoming
John D. Schmitz
Affiliation:
Department of Agricultural Economics, University of Wyoming
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Abstract

Laboratory experiments are used to generate data that facilitate investigation of pricing behavior in forward and spot markets. Results suggest a tendency for prices in a spot market to converge to levels higher than those in a forward market. The difference in these market environments is the supply schedule. Buyers in a spot market are aware that supply is inelastic and become relatively aggressive bidders. Forward markets have a relatively elastic supply schedule and buyers fare better. This may motivate firms to promote forward markets and/or vertically integrate in the procurement of inputs.

Keywords

experimental economicsforward marketprice discoveryspot market
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 29 , Issue 2 , December 1997 , pp. 327 - 336
Copyright
Copyright © Southern Agricultural Economics Association 1998

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