IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Optimality versus practicality in market design: A comparison of two double auctions

Listed author(s):
  • Satterthwaite, Mark A.
  • Williams, Steven R.
  • Zachariadis, Konstantinos E.
Registered author(s):

    We consider a market for indivisible items with m buyers and m sellers. Traders privately know their values/costs, which are statistically dependent. Two mechanisms are considered. The buyer's bid double auction collects bids and asks from traders and determines the allocation by selecting a market-clearing price. It fails to achieve all possible gains from trade because of strategic bidding. The designed mechanism is a revelation mechanism in which honest reporting of values/costs is incentive compatible and all gains from trade are achieved. This optimality, however, comes at the expense of plausibility: (i) the monetary transfers among the traders are defined in terms of the traders' beliefs about each other's value/cost; (ii) a trader may suffer a loss ex post; (iii) the mechanism may run a surplus/deficit ex post. We compare the virtues of the simple yet mildly inefficient buyer's bid double auction to the flawed yet perfectly efficient designed mechanism.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0899825614000670
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 86 (2014)
    Issue (Month): C ()
    Pages: 248-263

    as
    in new window

    Handle: RePEc:eee:gamebe:v:86:y:2014:i:c:p:248-263
    DOI: 10.1016/j.geb.2014.03.014
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Mark Satterthwaite & Artyom Shneyerov, 2007. "Dynamic Matching, Two-Sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," Econometrica, Econometric Society, vol. 75(1), pages 155-200, 01.
    2. Steven R. Williams & Georgia Kosmopoulou, 1998. "The robustness of the independent private value model in Bayesian mechanism design," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(2), pages 393-421.
    3. Henderson, Daniel J. & List, John A. & Millimet, Daniel L. & Parmeter, Christopher F. & Price, Michael K., 2012. "Empirical implementation of nonparametric first-price auction models," Journal of Econometrics, Elsevier, vol. 168(1), pages 17-28.
    4. Martin W. Cripps & Jeroen M. Swinkels, 2006. "Efficiency of Large Double Auctions," Econometrica, Econometric Society, vol. 74(1), pages 47-92, 01.
    5. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    6. McAfee, R. Preston, 1992. "A dominant strategy double auction," Journal of Economic Theory, Elsevier, vol. 56(2), pages 434-450, April.
    7. Kosenok, Grigory & Severinov, Sergei, 2008. "Individually rational, budget-balanced mechanisms and allocation of surplus," Journal of Economic Theory, Elsevier, vol. 140(1), pages 126-161, May.
    8. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.
    9. Philip J Reny & Motty Perry, 2006. "Toward a Strategic Foundation for Rational Expectations Equilibrium," Econometrica, Econometric Society, vol. 74(5), pages 1231-1269, 09.
    10. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    11. Gresik, Thomas A. & Satterthwaite, Mark A., 1989. "The rate at which a simple market converges to efficiency as the number of traders increases: An asymptotic result for optimal trading mechanisms," Journal of Economic Theory, Elsevier, vol. 48(1), pages 304-332, June.
    12. Robert, Jacques, 1991. "Continuity in auction design," Journal of Economic Theory, Elsevier, vol. 55(1), pages 169-179, October.
    13. Satterthwaite, Mark & Shneyerov, Artyom, 2008. "Convergence to perfect competition of a dynamic matching and bargaining market with two-sided incomplete information and exogenous exit rate," Games and Economic Behavior, Elsevier, vol. 63(2), pages 435-467, July.
    14. Elena Krasnokutskaya, 2011. "Identification and Estimation of Auction Models with Unobserved Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 293-327.
    15. Robert Wilson, 1998. "Sequential equilibria of asymmetric ascending auctions: The case of log-normal distributions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(2), pages 433-440.
    16. 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 1041-1063, September.
    17. Steven R. Williams, 1999. "A characterization of efficient, bayesian incentive compatible mechanisms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(1), pages 155-180.
    18. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:86:y:2014:i:c:p:248-263. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.