Working Paper BETA #2019-08

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Title : Controlling Monopoly Power in a Classroom Double-Auction Market Experiment

Author(s) : Giuseppe Attanasi, Kene Boun My, Andrea Guido, Mathieu Lefevbre

Abstract : There is robust evidence in the experimental economics literature studying decentralized forms to control monopoly power via trading institutions. This strand provides evidence showing that double-auction trading institutions do affect monopoly power. In addition, recent experimental evidence shows that trading institutions themselves can shape agents' market behaviour through the formation of anchors and reference points. We recreate experimentally five different double-auction market structures (perfect competition,perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject experimental design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of reference prices emerged in previously implemented market structures. Results from our classroom experiments suggest that i) prevailing prices in the first implemented market work as reference points in subsequent market structures, ii) the formation of reference points negatively impacts on monopolists' power in later market structures.

Key-words : Classroom Experiment, Monopoly, Perfect Competition, Double-Auction

JEL Classification : D42