Walrasian Tatonnement Auctions on the Tokyo Grain Exchange

The Tokyo Grain Exchange (TGE)’s itayose mechanism providesthe opportunity to analyze functioning Walrasian tâtonnementauctions (WTA). In 15,677 auctions conducted over 1997–1998for corn and redbean futures contracts, price formation is unexpectedlysimilar to that observed in continuous double auctions. Provisionalprices and pledges are informative. In contrast to behaviorobserved in experiments, few pledges are deceptive, becausethe traders participate repeatedly and because the auctioneerhas flexibility when changing the provisional price and endingthe auction. Both the risk of the auction ending and the moreequitable dispersion of information increase depth and the speedat which information is embodied in price.