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The Economics Of Open Air Markets

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Executive Summary

Despite their current prevalence and historical significance, little is known about the economics of open air markets. This paper uses open air markets as a natural laboratory to provide initial insights into the underlying operation of such markets. Using data on thousands of individual transactions gathered from May 2005- August 2008, the author reports several insights. First, the natural pricing and allocation mechanism in open air markets is capable of approaching full efficiency, even in quite austere conditions. Yet, a second result highlights the fragility of this finding: allowance of explicit seller communication frustrates market efficiency in a broad array of situations.

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