Over-the-counter markets vs. double auctions: A comparative experimental study

Abstract

We study an electronic over-the-counter (OTC) market, in which each agent looks for the best counterpart through bilateral negotiations. We compare its performance with the standard electronic double-auction (DA) market, in which traders post their quotes publicly. We show that the lack of information in the OTC market induces an efficiency loss, characterized by an average closing price below the competitive price and by a traded quantity below the competitive quantity. We further test the robustness of these findings when exogenous shocks modify the competitive equilibrium. Among other things, we show that supply shocks increasing the competitive quantity improve OTC's efficiency

Does eye-tracking have an effect on economic behavior?

“…The last game in Group 1 was the Double Auction, with instructions based on Smith [ 69 ] and Attanasi et al [ 65 ]. In this game, subjects were randomly assigned the role of either Buyer or Seller.…”

Controlling monopoly power in a double‐auction market experiment

“…Finally, we move to the study of sellers' toughness. As shown in Section 3.2, we derive a model of price anchoring in which the prices prevailing in previous markets affect sellers' perceived monopoly power—that is, their bargaining toughness (Attanasi et al, 2016; Kristensen & Gärling, 1997). By exploiting our within‐subjects design, we perform a second kind of analysis to estimate an indicator of sellers' toughness as the weight in a convex linear combination of two market prices, in line with the formalization of Equation (3).…”

“…Following Smith [1962] and subsequent standard practice in market classroom experiments (see, e.g., Holt [1996], Cason and Friedman [2008]; Attanasi et al [2016]), we recreate an experimental, computerized double-auction laboratory market. Table 1 describes the main features of each market structure of our design.…”

“…Individual cubicles ensured subjects' anonymity and absence of communication during the experiment. Each session took place before tutorials of the first-year introductory course in Microeconomics, throughout three consecutive academic years (November-December, 2014-2016.…”

“…This way, the process of offer and counteroffer leads to mutually beneficial agreements distorted toward the first anchor. Attanasi et al (2016, 2021) show that this anchoring effect especially holds under double‐auction mechanisms within the same market structure—perfect competition—repeatedly played for at least three periods.…”