Randomized double auctions: gains from trade, trader roles, and price discovery

The Gains from Trade Under Fixed Price Mechanisms

The Myerson—Satterthwaite Theorem (1983) demonstrates that information must interfere with efficient exchange when a buyer and seller have independently distributed private information and there is a nontrivial exchange problem. I bound the losses associated with private information based on a simple characteristic for of the distributions. When the median of the seller’s cost is less than the ...

Price Formation in Double Auctions

We develop a model of information processing and strategy choice for participants in a double auction. Sellers in this model form beliefs that an offer will be accepted by some buyer. Similarly, buyers form beliefs that a bid will be accepted. These beliefs are formed on the basis of observed market data, including frequencies of asks, bids, accepted asks, and accepted bids. Then traders choose...

Price Discovery in Emissions Permit Auctions

Auctions are increasingly being used to allocate emissions allowances (“permits”) for cap and trade and common-pool resource management programs. These auctions create thick markets that can provide important information about changes in current market conditions. This paper reports a laboratory experiment in which half of the bidders experienced unannounced increases in their willingness to pa...

Measurable Dynamic Gains from Trade

Rationalizability and Monotonicity in Large Uniform Price and Double Auctions

We analyze a broad class of auctions in which goods are traded at a single price, such as the uniform price auctions and the double auction (Satterthwaite and Williams (1989)), while admitting the presence of both common and private value and allowing players to trade more than one unit of the object. Instead of calculating a Nash equilibrium, we first eliminate the weakly dominated strategies,...