Double Auction Dynamics: Structural Consequences of Non-Binding Price Controls* Dhananjay (Dan) K. Gode

In competitive equilibrium, non-binding price controls (that is, price floors below and ceilings above the equilibrium) should have no effect on market outcomes, but in laboratory experiments they do. We build a simple dynamic model of double auction markets with “zero-intelligence” (ZI) computer traders that accounts for many, though not all, of the discrepancies between the data and the Walrasian tatonnement predictions. Success of the model in organizing the data, and decomposing various consequences of price controls, suggests that the simple ZI model can be a powerful tool to gain insights into the dynamics of market institutions. JEL Classification: D44