Commodity Durability, Trader Specialization, and Market Performance

Proceedings of the National Academy of Sciences, 2011

Posted: 9 Feb 2013

See all articles by Shengle Lin

Shengle Lin

affiliation not provided to SSRN

Vernon L. Smith

Chapman University - Economic Science Institute; Chapman University School of Law

John W. Dickhaut

Chapman University (Deceased)

David Porter

Chapman University - The George L. Argyros School of Business & Economics

Date Written: November 29, 2011

Abstract

The original double auction studies of supply and demand markets established their strong efficiency and equilibrium convergence behavior using economically unsophisticated and untrained subjects. The results were unexpected because all individual costs and values were private and dependent entirely on the market trading process to aggregate the dispersed information into socially desirable outcomes. The exchange environment, however, corresponded to that of perishable, and not re-traded goods in which participants were specialized as buyers or sellers. We report experiments in repeated single-period markets where tradability, and buyer-seller role specialization, is varied by imposing or relaxing a restriction on re-trade within each period. In re-trade markets scope is given to speculative motives unavailable where goods perish on purchase. We observe greatly increased trade volume and decreased efficiency but subject experience increases efficiency. Observed speculation slows convergence by impeding the process whereby individuals learn from the market whether their private circumstances lead them to specialize as buyers or sellers.

Keywords: durable goods, specialization of trade, speculation and liquidity

JEL Classification: C9, E44

Suggested Citation

Lin, Shengle and Smith, Vernon L. and Dickhaut, John and Porter, David, Commodity Durability, Trader Specialization, and Market Performance (November 29, 2011). Proceedings of the National Academy of Sciences, 2011, Available at SSRN: https://ssrn.com/abstract=2213967

Shengle Lin (Contact Author)

affiliation not provided to SSRN

Vernon L. Smith

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States
714-628-2830 (Phone)

Chapman University School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States

John Dickhaut

Chapman University (Deceased)

David Porter

Chapman University - The George L. Argyros School of Business & Economics ( email )

Orange, CA
United States
(714) 997-6915 (Phone)
(714) 628-2881 (Fax)

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