Can double auctions control monopoly and monopsony power in emissions trading markets?

We conduct a laboratory experiment to investigate whether the double auction institution can suppress market power in emissions trading markets. We study 24 markets with varying market structure in a ABA crossover design which controls for subject effects. We find clear evidence of successful use of market power. Average prices rise under monopoly and fall under monopsony. Opening prices are affected much more than closing prices. Profits are redistributed in favor of the agent with power. Efficiency is not affected significantly. Analysis of convergence trends suggests that this is not a transitory phenomenon. We interpret our results as evidence of successful price discrimination within a double auction market. (C) 2001 Elsevier Science (USA).