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Competitive equilibrium and the double auction

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  • Itzhak Rasooly

Abstract

In this paper, we revisit the common claim that double auctions necessarily generate competitive equilibria. We begin by observing that competitive equilibrium has some counterintuitive implications: specifically, it predicts that monotone shifts in the value distribution can leave prices unchanged. Using experiments, we then test whether these implications are borne out by the data. We find that in double auctions with stationary value distributions, the resulting prices can be far from competitive equilibria. We also show that the effectiveness of our counterexamples is blunted when traders can leave without replacement as time progresses. Taken together, these findings suggest that the ‘Marshallian path’ is crucial for generating equilibrium prices in double auctions.

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  • Itzhak Rasooly, 2022. "Competitive equilibrium and the double auction," Economics Series Working Papers 974, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:974
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    Cited by:

    1. J. Deride & A. Jofr'e & R. T. Rockafellar, 2023. "Reaching an equilibrium of prices and holdings of goods through direct buying and selling," Papers 2305.17577, arXiv.org.

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