Abstract
Auctions that require advance production increase seller costs because inventories must be held. This cost does not exist in production-to-demand markets for which production follows trading, and sales exactly match quantities produced. Data from laboratory computerized double auction markets show that advance-production prices are significantly higher and quantities traded are significantly lower than they are in production-to-demand auctions. Price convergence patterns show advance-production sellers moving toward 9% higher prices and 22% greater earnings.
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Phillips, O.R., Menkhaus, D.J. & Krogmeier, J.L. Laboratory Behavior in Spot and Forward Auction Markets. Experimental Economics 4, 243–256 (2001). https://doi.org/10.1023/A:1013269304544
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DOI: https://doi.org/10.1023/A:1013269304544