Journal Article

Price Discovery in Private Negotiation Trading with Forward and Spot Deliveries

Dale J. Menkhaus, Owen R. Phillips, Allison F. M. Johnston and Alla V. Yakunina

in Applied Economic Perspectives and Policy

Published on behalf of Agricultural and Applied Economics Association

Volume 25, issue 1, pages 89-107
Published in print January 2003 | ISSN: 2040-5790
Published online January 2003 | e-ISSN: 2040-5804 | DOI: http://dx.doi.org/10.1111/1467-9353.00047
Price Discovery in Private Negotiation Trading with Forward and Spot Deliveries

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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.

Keywords: D440; Q140

Journal Article.  8096 words.  Illustrated.

Subjects: Agricultural Economics ; Market Structure and Pricing

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