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Abstract

This laboratory study investigates the extent to which matching and inventory loss risks contribute to market power in private negotiation trading. Asymmetry in the number of buyers and sellers increases matching risk when exchange is bilateral. The risk of inventory loss can occur from advance production and is common in markets for perishable products. In a buyer concentrated market with bilateral trading, prices are about 23% below the predicted competitive level and close to the monopsony price. These lower prices are the result of tacit coordination enjoyed by buyers resulting from matching and inventory loss risks faced by sellers.

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