An ascending double auction |
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Authors: | Michael Peters Sergei Severinov |
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Institution: | (1) Department of Economics, University of British Columbia, 997-1873 East Mall, Vancouver, BC, V6T 1Z1, Canada;(2) Fuqua School of Business, Duke University, Durham, NC 27708, USA;(3) Department of Economics, University of Essex, Wivenhoe park, Essex, CO43SQ, UK |
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Abstract: | We show why the failure of the affiliation assumption prevents the double auction from achieving efficient outcomes when values
are interdependent. This motivates the study of an ascending price version of the double auction. It is shown that when there
is a sufficiently large, but still finite, number of sellers, this mechanism has an approximate perfect Bayesian equilibrium in which traders continue bidding if and only if their true estimates of the ‘value’ of the
object being traded exceed the current price. This equilibrium is ex post efficient and has a rational expectations property in the sense that along the equilibrium path traders appear to have made the best possible trades conditional on information
revealed by the trading process.
We thank two anonymous referees and Dan Kovenock, the Editor, whose detailed comments and suggestions have allowed us to substantially
improve the paper. We also thank seminar participants at University of Toronto, University of Wisconsin-Madison, Summer 2003
North American Meetings of the Econometric Society, 2004 NSF Decentralization Conference for their comments. |
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Keywords: | Double auction Rational expectations Extensive form games Bayesian games |
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