Controlling monopoly power in a double-auction market experiment

There is robust evidence in the experimental econom- ics literature showing that monopoly power is affected by trading institutions. In this paper, we study whether trading institutions themselves can shape agents' market behavior through the formation of anchors. We recreate experimentally five different double‐auction market structures (perfect competition, perfect com- petition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within‐subject design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of price anchors emerged in previously implemented market structures. Results from our classroom experiments suggest that double‐auction trading institutions succeed in preventing monopo- lists from exploiting their market power. Furthermore, the formation of price anchors in previously implemented markets negatively impacts on monopolists' power in later market structures.