TY  - JOUR
AU  - Al-Ubaydli,Omar
AU  - List,John A.
AU  - Price,Michael K.
TI  - The Nature of Excess: Using Randomized Treatments to Investigate Price Dynamics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16319
PY  - 2010
Y2  - August 2010
UR  - http://www.nber.org/papers/w16319
L1  - http://www.nber.org/papers/w16319.pdf
N1  - Author contact info:
Omar Al-Ubaydli
Department of Economics and Mercatus Center
George Mason University
E-Mail: omar@omar.ec

John List
Department of Economics
University of Chicago
1126 East 59th
Chicago, IL 60637
Tel: 301/405-1288
Fax: 301/314-9091
E-Mail: jlist@uchicago.edu

Michael Price
Department of Economics
Andrew Young School of Policy Studies
Georgia State University
P.O. Box 3992
Atlanta, GA 30302-3992
Fax: 404-413-0141
E-Mail: mprice25@gsu.edu
AB  - This study explores empirically the price dynamics within two distinct market institutions – a double oral auction, which resembles modern asset markets, and a bilateral exchange market, which represents markets that have existed for centuries. To provide a theoretical basis to our investigation, we test and compare the excess supply model (Walras (1874, 1877, 1889, 1896)) and the excess rent model (Smith (1962, 1965)) in both market institutions. Our approach is unique in that we make use of appropriate demand and supply systems coupled with randomization of the main treatment variable to discriminate between the theories. All previous efforts, including Smith's (1965) seminal experiments, use designs that cannot appropriately parse the models. We report several insights, perhaps most importantly, we consistently reject the Walrasian model in favor of the excess rent model, regardless of market institution. This finding has important implications both positively and normatively.
ER  -