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Symmetric Equilibria in Double Auctions with Markdown Buyers and Markup Sellers

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Author Info

  • Roberto Cervone

    ()
    (Department of Applied Mathematics, University of Venice)

  • Stefano Galavotti

    ()
    (Department of Decision Sciences, University of Florence)

  • Marco LiCalzi

    ()
    (Department of Applied Mathematics and Advanced School of Economics, University of Venice)

Abstract

Zhan and Friedman (2007) study double auctions where buyers and sellers are constrained to using simple markdown and markup rules. In spite of the alleged symmetry in roles and assumptions, buyers are shown to have the upper hand both in the call market and in the continuous double auction. We replicate the study and show that their formulation of the sellers’ markup strategies, while seemingly natural, is strategically unsound because of a hidden asymmetry. We introduce a symmetric set of markup strategies for the sellers and show how it explains away the paradox of buyers’ advantage in three different double-sided market protocols.

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File URL: http://virgo.unive.it/wpideas/storage/2009wp187.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 187.

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Length: 15 pages
Date of creation: Jun 2009
Date of revision:
Publication status: Published in C. Hernandez, M. Posada and A. Lopez-Paredes (eds.), Artificial Economics, Springer, 2009, 81-92
Handle: RePEc:vnm:wpaper:187

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Keywords: market engineering; trading protocols; exchange market;

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References

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  1. Zhan, Wenjie & Friedman, Daniel, 2007. "Markups in double auction markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2984-3005, September.
  2. Marco LiCalzi & Lucia Milone & Paolo Pellizzari, 2008. "Allocative efficiency and traders' protection under zero intelligence behavior," Working Papers 168, Department of Applied Mathematics, Università Ca' Foscari Venezia, revised Nov 2009.
  3. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  4. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-63, September.
  5. Oliver Kirchkamp & J. Philipp Reiß, 2008. "Heterogeneous bids in auctions with rational and markdown bidders - Theory and Experiment," Jena Economic Research Papers 2008-066, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
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Cited by:
  1. Shira Fano & Marco LiCalzi & Paolo Pellizzari, 2013. "Convergence of outcomes and evolution of strategic behavior in double auctions," Journal of Evolutionary Economics, Springer, vol. 23(3), pages 513-538, July.

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