AN EXPERIMENTAL INVESTIGATION OF TRANSACTION COSTS

This research builds on Hoffman and Spitzer (1982 and 1986) and Coursey, Hoffman, and Spitzer (1987) and investigates how transaction costs may alter price patterns and economic efficiency in markets. Sixteen experimental markets were conducted which were designed to have different levels of transaction costs. The transaction costs were of two types, either as a consequence of strategic price-setting due to potential holdouts or due to the number of traders who had to contract to trigger a synergistic payoff. The results of the markets indicated that transaction costs had the anticipated influence on the price patterns and the efficiency of the markets.