Price Discovery in Private Negotiation Trading with Forward and Spot Deliveries

Posted: 20 Sep 2006

See all articles by Owen R. Phillips

Owen R. Phillips

University of Wyoming - College of Business - Department of Economics and Finance

Dale J. Menkhaus

University of Wyoming

Alison F.M. Johnston

University of Wyoming

Alla V. Yakunina

Saint Petersburg State University of Economics and Finance

Abstract

Advance production in spot markets increases seller costs because inventories must be held. This cost does not exist in production-to-demand (or forward) markets, for which production follows trading, and sales exactly match quantities produced. Data from laboratory-computerized markets that trade through private negotiation are analyzed. For the experimental supply and demand conditions, price convergence patterns show spot prices 10.8% lower and the number of trades 12.4% fewer than forward outcomes. The adverse impact of advance production and private negotiation on seller earnings is emphasized when earnings are compared with those from double auction trading.

Suggested Citation

Phillips, Owen R. and Menkhaus, Dale J. and Johnston, Alison F.M. and Yakunina, Alla V., Price Discovery in Private Negotiation Trading with Forward and Spot Deliveries. Review of Agricultural Economics, Vol. 25, pp. 89-107, June 2003, Available at SSRN: https://ssrn.com/abstract=931245

Owen R. Phillips (Contact Author)

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2195 (Phone)
307-766-5090 (Fax)

Dale J. Menkhaus

University of Wyoming ( email )

Box 3434 University Station
Department of Applied Agricultural Economics
Laramie, WY 82071
United States
307-766-5128 (Phone)
307-766-5544 (Fax)

Alison F.M. Johnston

University of Wyoming

Box 3434 University Station
Laramie, WY 82071
United States

Alla V. Yakunina

Saint Petersburg State University of Economics and Finance ( email )

Sadovaya st. 21
Saint Petersburg, 191023

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