The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large
AbstractA trader who privately knows his preferences may misrepresent them in order to influence the market price. This strategic behavior may prevent realization of all gains from trade. In this paper, trade in a simple market with an explicit rule for price formation is modeled as a Bayesian game. The authors show that the difference between a trader's bid and his reservation value is maximally O(1/m) where m is the number of traders on each side of the market. Competitive pressure as m increases, thus, quickly overcomes the inefficiency private information causes and forces the market towards an efficient allocation. Copyright 1989 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 56 (1989)
Issue (Month): 4 (October)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
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