Auction Experiments and Simulations of Milk Quota Exchanges

Since 2000 Germany has a fairly unique market mechanism to trade milk quotas between dairy farms. The two major features are: (1) a quasi auctioning system that produces excess demands which are covered by state reserves free of charge and (2) a price band is used to exclude high price bids. For both features an experimental design is developed to study their impact in comparison to a regular seller’s sealed bid double auction. Results show that both treatments lead to significant misallocations. These are due the direct impact of regulations and due to an imperfect adjustment of bidding functions towards them. The major goal of the market design to reduce quota prices is reached, however, at significant trade losses.

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Conference Paper/ Presentation
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JEL Codes:
L11; D44; Q13
Series Statement:
Selected Paper

 Record created 2017-04-01, last modified 2018-01-22

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