Controlling monopoly power in a double‐auction market experiment

Abstract

There is robust evidence in the experimental economics literature showing that monopoly power is affected by trading institutions. In this paper we study whether trading institutions themselves can shape agents' market behaviour through the formation of anchors and reference points. We recreate experimentally five different double-auction market structures (perfect competition, perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of reference prices emerged in previously implemented market structures. Results from our classroom experiments suggest that double-auction trading institutions succeed in preventing monopolists to exploit their market power. Furthermore, the formation of reference points in previously implemented markets negatively impacts on monopolists' power in later market structures.

Zero‐intelligence versus human agents: An experimental analysis of the efficiency of Double Auctions and Over‐the‐Counter markets of varying sizes

“…As shown by Smith (1962) and subsequent experimental research (see, e.g., Attanasi et al, 2021;Friedman & Rust, 1993), the convergence and efficiency properties of DA markets with human traders are robust to modifications of the market size, that is, of the number of buyers and sellers. The same occurs under agent-based simulations with ZI agents (for a review, see Gode & Sunder, 2018;Rust et al, 1993).…”

Introduction to the special issue on markets, policies, and economic design: Theory and experiments

“…In a study of experimental markets, Attanasi et al (2021) investigate whether trading institutions themselves can shape agents' market behavior through the formation of anchors. The authors create five different double‐auction market structures (perfect competition, perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within‐subject design, varying the order of market implementation.…”