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Concurrent Trading in Two Experimental Markets with Demand Interdependence

Arlington W. Williams, Vernon L. Smith, John O. Ledyard and Steven Gjerstad
Economic Theory
Vol. 16, No. 3, Symposium: Experimental Markets (Nov., 2000), pp. 511-528
Published by: Springer
Stable URL: http://www.jstor.org/stable/25055346
Page Count: 18
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Concurrent Trading in Two Experimental Markets with Demand Interdependence
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Abstract

We report results from fifteen computerized double auctions with concurrent trading of two commodities. In contrast to prior experimental markets, buyers' demands are induced via CES earnings functions defined over the two traded goods, with a fiat money expenditure constraint. Sellers receive independent marginal cost arrays for each commodity. Parameters for buyers' earnings functions and sellers' costs are set to yield a stable, competitive equilibrium. In spite of the complexity introduced by the demand interdependence, the competitive model is a good predictor of market outcomes, although prices tend to be above (below) the competitive prediction in the low-price (high-price) market.

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